Oil Stocks Near Breaking Point as June Hormuz Deadline Passes Without Resolution

A late May deadline for a Strait of Hormuz breakthrough has passed without resolution, leaving JPMorgan to warn that OECD commercial crude inventories could hit operational stress levels by early June. Saudi Aramco added that gasoline and jet fuel stocks could reach critically low levels before peak summer demand arrives. Brent was at $109.82 a barrel early Tuesday, WTI at $102.76, holding a narrow range despite the strait remaining closed for roughly three months since the U.S.-Israel military campaign against Iran began in late February. The price stability has masked an accelerating inventory drain. The IEA reported that governments and industry had collectively released 164 million barrels through May 8, a drawdown pace that eclipses previous strategic reserve interventions. Morgan Stanley estimates markets have absorbed the loss of nearly 1 billion barrels of supply since the conflict began — exceeding the full supply shock of the 2022 Russia-Ukraine war — yet Brent has not broken above 2022 highs. The bank credits three buffers: pre-crisis inventory builds, sustained high U.S. crude exports, and slowing Chinese imports. All three are now thinning. Morgan Stanley's base case puts Dated Brent at $110 in Q2, declining to $100 in Q3 and $90 thereafter, but only if the strait reopens soon. Capital Economics puts the June ceiling considerably higher: $130-$140 a barrel if the waterway stays shut, a level the bank says would force disorderly and economically damaging demand cuts. Events near the strait escalated on Friday. One vessel was seized and escorted toward Iran; an Indian-flagged cargo ship sank following an attack off Oman. Iran's Islamic Revolutionary Guard Corps is enforcing a vessel declaration requirement for all transits, maintaining an effective blockade while the U.S. Navy has turned back 81 ships under its own counter-operations since mid-April. Iran is still producing at terminals including Kharg Island, but at least six empty tankers are moored there awaiting loading. No laden crude departures have been recorded in six days, following a large oil spill earlier this month, according to maritime security firm Windward. The disruption is showing up in export data. Iraq's April crude shipments fell to 10 million barrels from 93 million in March. U.S. gasoline averaged $3.84 a gallon Monday, up from below $3 in early March. Saudi Aramco's warning on refined products suggests the crunch may hit gasoline and jet fuel markets ahead of crude. If the strait remains closed through end-June, Morgan Stanley warns Brent will be forced into the price spike it has so far avoided. Any modification to the IRGC's vessel declaration regime would be the first concrete signal of an exit.