Oil Market Runs Out of Cushion as Hormuz Crisis Enters Fourth Month

Three months after the closure of the Strait of Hormuz disrupted global crude flows, the oil market is showing signs of buffer exhaustion as inventory draws accelerate and supply tightness becomes more visible. According to a recent analysis by Kpler, the cushion that absorbed the initial shock through surplus barrels, oil in transit, and floating storage is now largely depleted, leaving commercial stocks as the last line of defense.

Global Inventory Picture

Global onshore crude oil stocks have dropped to approximately 3,600 million barrels, a decrease of around 130 million barrels from the post-pandemic peak recorded in late March 2026. The pace of drawdowns varies sharply by country, with major consuming nations turning to strategic petroleum reserves at different rates.

Japan stands out as the most exposed major economy. The country has cut its stocks by more than 70 million barrels from a pre-conflict baseline of 350 million barrels. April crude imports collapsed to just 734 kbd, only 32% of the 2025 average, forcing heavy reliance on strategic reserves. While imports are expected to recover to 1.63 Mbd in May, Japan currently holds enough coverage to maintain refinery throughput of roughly 2.2 Mbd for around 126 days.

South Korea faces a thinner buffer. Despite a planned 22.5 million barrel SPR release, observable inventory draws remain limited at around 7 million barrels since the war began. Refinery runs have been cut by nearly 1 Mbd in both April and May, averaging around 2 Mbd. Even with these reductions, crude imports were insufficient to meet demand, requiring approximately 300 kbd to be drawn from inventories.

China is bucking the global trend with observable crude inventories at a record near 1,240 million barrels, up roughly 25 million barrels since the conflict began. State-owned refiners have significantly cut term crude purchases for May and June, while Shandong independents bear the brunt of maintaining domestic product supply. Seaborne crude imports have fallen from nearly 11.7 Mbd in February to around 6.21 Mbd in May, including volumes delivered via Myanmar's Made Island route.

India saw crude imports drop sharply from 5.2 Mbd in February to around 4.46 Mbd in March, before partially recovering to roughly 4.7 Mbd in May. Russian and Latin American barrels have replaced most of the lost Middle East Gulf volumes. Inventories currently hover near 90 million barrels, including a 3 million barrel drawdown from SPR sites at Visakhapatnam and Mangalore.

The United States has seen relative stability. Inventories reached a post-pandemic high of 378 million barrels in early April before drawing down to 350 million. This stability reflects an SPR transfer to commercial sectors, with 21 million barrels pulled from the SPR while commercial stocks grew by nearly 18 million. US crude exports reached record highs above 5.2 Mbd in April and May, supported by the SPR release and reduced refinery runs during maintenance.

European inventories hit a multi-year low of 311 million barrels in mid-February before rebounding to 348 million barrels by late March. Current levels sit above 340 million barrels. EU refiners have adapted by sourcing more crude from the US Gulf Coast, keeping import levels relatively stable from February through May despite widespread refinery maintenance.

The Crude Balance Shift

Before the conflict, the crude and condensate balance pointed to a surplus of around 3.2 Mbd in March and 3.5 Mbd in April. The Hormuz disruption flipped this picture dramatically. The market shifted into deficits of approximately -2.76 Mbd in March, -1.35 Mbd in April, and nearly -2.6 Mbd in May.

A significant gap exists between the implied balance and observable inventory data. In April, the deficit of around 1.34 Mbd contrasted with inventory and oil-on-water declines of just 682 kbd, leaving roughly 659 kbd unaccounted for. This gap likely reflects barrels withdrawn from underground storage or pipeline systems not covered by standard monitoring.

For May, the gap has widened further to an implied difference of around 1.69 Mbd. Larger drawdowns appear inevitable in the coming months, either from underground storage or through further refinery throughput cuts, particularly in China where intake projections may need to drop below 13 Mbd.

Oil on Water and Floating Storage

Global oil on water initially fell sharply by 135 million barrels from pre-conflict levels to 1,130 million by late March. Since then, volumes have rebounded to around 1,235 million currently. The recovery has been driven by bypass routes established by Saudi Arabia and Abu Dhabi, along with higher supply from the US Gulf Coast. The longer transit times associated with these alternative supply routes have naturally increased global oil-on-water volumes as cargoes redirect to Asia.

Sanctioned crude on water has dropped over 45 million barrels from mid-March levels to around 330 million. Russian crude accounts for most of this reduction, with nearly 35 million barrels less by late April.

The Quality Mismatch

A more structural problem is emerging beyond the volumetric issue. The Hormuz disruption has primarily tightened the availability of medium-sour crude, with exports falling to nearly half their pre-conflict levels. Weekly exports hit a low of 5.7 Mbd in late April, the sharpest drop since the war began.

The market response has shifted the global crude pool toward a lighter profile. Light crude surpassed medium-density barrels as Europe's primary import stream in April, a rare structural anomaly. While US light crude exports provide a numerical boost to global volumes, they cannot replicate the middle-distillate yields characteristic of Middle Eastern grades. A complex refinery processing WTI can yield roughly 10% less distillate than one running Arab Light.

Structural shortfalls of over 500 kbd for gasoil and 450 kbd for jet fuel are projected for June. The shortage of heavier feedstocks that strained the European diesel market last year is set to repeat with greater intensity.

Venezuelan volumes have partially filled the void left by Iraqi barrels, with March shipments to India climbing to 300 kbd. Projections suggest Indian imports of Venezuelan crude could reach 400 kbd this month, though total availability still trails global consumption needs.

Refinery Maintenance Cushion

Part of the prior surplus that helped delay the inventory tightening was tied to refinery maintenance. An average of 11.8 Mbd of refining capacity has been offline since the start of the conflict, with 6.1 Mbd from planned maintenance and 5.9 Mbd structurally linked to the conflict through damage or mandated demand curtailment. This dynamic helps explain why the initial price and inventory reaction was less severe than the supply shock would suggest.

Looking Ahead

As draws accelerate into summer, the market should see greater convergence between physical spot prices and crude futures prices. Prompt month Dated to Frontline (DFL) prices have already dropped from highs above $25 per barrel to below $3 per barrel, but remain well above typical values around $1 per barrel. Futures structure will reflect physical tightness more acutely than outright flat price, which remains anchored by ceasefire risk and demand destruction fears.

European refinery crude intake is expected to increase sharply to around 9.93 Mbd in June as maintenance activity eases, placing renewed pressure on inventories. Elevated crude prices and freight costs could discourage refiners from significantly increasing prompt purchases, deepening the dependence on inventory draws.

This article is a recap of research published by Kpler.