Global oil inventories could hit unprecedented lows within weeks if the Strait of Hormuz remains effectively closed, according to UBS.

Economist Arend Kapteyn warned in a note on Tuesday that the current pace of drawdowns points to “all-time low levels by the end of April,” raising the risk of a severe supply squeeze and a sharp escalation in crude prices.

Kapteyn wrote that pipeline flows from Saudi Arabia and the United Arab Emirates, together with ongoing Iranian exports and releases from International Energy Agency inventories, “could offset roughly half of the oil lost” from the Hormuz shutdown.

Even so, he said this would still leave “a shortfall of around 10 Mb/d,” forcing rapid depletion of global crude and product inventories.

Inventory levels are also unevenly distributed. While China holds about four months of crude imports in inventories, Kapteyn noted that many low-income Asian economies would hit critical levels far sooner.

This imbalance “raises the risk of panic buying, as countries attempt to secure supplies before inventories are exhausted,” UBS stated.

The price implications are severe. If Hormuz remains closed, Kapteyn believes oil could “conservatively reach around $120/bbl by end-March and $150/bbl by end-April,” with prices potentially rising to $160/bbl absent clear demand destruction.
Source: Investing.com