Oil markets face moment of truth in June as Strait of Hormuz remains

Dire warnings about oil supplies are coming from everywhere lately as the Strait of Hormuz remains largely closed, with President Donald Trump's trip to China failing to produce a breakthrough to reopen the critical waterway [1]. While investors have been trading on hopes that the Iran ceasefire will remain intact, there is little sign that the oil trade will return to normal soon, forcing them to reckon with the reality of worsening shortages and an imminent tipping point ahead [1]. JPMorgan predicted that commercial oil inventories in the developed world could "approach operational stress levels" by early June [1]. Saudi Aramco said global inventories of gasoline and jet fuel could reach "critically low levels" ahead of the summer [1].

The International Energy Agency warned that the world is drawing down oil inventories at a record pace, with 164 million barrels released by governments and industry as of May 8 [1]. "Rapidly shrinking buffers amid continued disruptions may herald future price spikes ahead," IEA said in its latest monthly report [1]. Hamad Hussain, climate and commodities economist at Capital Economics, estimated that oil prices could top $130-$140 a barrel next month if the strait remains closed and inventory depletion rates remain steady [1]. He warned that if the Strait remains effectively closed and commercial oil inventories in the OECD continue to be run down at the same pace as they were in April, oil stocks could reach critically low levels by the end of June [1].

Meanwhile, Brazil is experiencing an epic decades-long oil boom, which was responsible for production hitting a new record high for March 2026, with 4.24 million barrels of oil produced [3]. This represents a notable 4.6% increase over the month prior and is a whopping 17.3% greater year over year [3]. Brazil's hydrocarbon production will continue expanding at a healthy clip, with national oil company Petrobras planning to invest $109 billion between 2026 and 2030, with most of that capital spending directed to Petrobras exploration and production facilities [3].

As the world draws down oil inventories at a record pace, the risk of a "non-linear" adjustment in demand and prices will continue to grow for as long as the Strait of Hormuz remains effectively closed [1]. Analysts at UBS also warned that oil inventories are approaching record lows, highlighting the risk of panic buying if physical dislocation intensifies and the Strait of Hormuz remains closed [1]. The real question now is whether the Strait of Hormuz will remain closed, and if so, how long it will take for the oil market to adjust to the new reality.