Dispute Over Oil Supply Losses from Strait of Hormuz Closure

In the wake of US and Israeli attacks on Iran leading to Tehran's closure of the Strait of Hormuz, initial reports primarily focused on figures regarding the lost oil supply due to this closure. These figures varied by source but all exceeded 10 million barrels per day. However, traders now suggest the actual supply loss may be significantly smaller.

Adjustments in Estimates of Lost Oil Supply

"After an initial disruption when the conflict erupted, flows have been reinforced as alternative logistics have been expanded," explained Kpler, as cited by Reuters last week. These alternative logistics include Saudi Arabia shifting from the Strait of Hormuz to the Red Sea via the East-West Pipeline, and other Gulf producers switching to "turbo mode" to transport their oil tankers through this bottleneck.

However, Kpler itself reported a total estimated loss of 961 million barrels from the start of the war through May 22, equivalent to over 11 million barrels per day in lost supply. At that time, the company's analysts noted that the total lost supply could reach 1 billion barrels as fuel demand increases in the summer and many oil wells remain closed due to storage capacity constraints, while oil tanker traffic in the Strait of Hormuz remains severely disrupted.

Comparison of Estimated Oil Supply Losses from Strait of Hormuz Closure

In reality, Kpler was among the more conservative agencies in estimating lost supply. The International Energy Agency (IEA) assessed the loss at 14 million barrels per day, warning of severe shortages emerging in July unless traffic returns to pre-war levels. The U.S. Energy Information Administration (EIA) was also cautious in its estimates, showing losses exceeding 11 million barrels per day and warning that this loss has forced the use of reserves.

"Under our assumptions, we expect global oil inventories to decline by an average of 6.3 million barrels/day in Q2/26 and 7.6 million barrels/day in Q3/26," the EIA said in its May Short-Term Energy Outlook.

Market Reality and Controversial Statements

However, Reuters cited "sources from two major trading companies" suggesting that the actual supply loss in June may be only 5 to 6 million barrels per day as producing countries have found ways to bypass the Hormuz closure. A statement from U.S. President Donald Trump claiming that the U.S. Navy had helped transport 100 million barrels of oil out of Hormuz contributed to the increasingly bearish market sentiment, although this statement has been challenged and unverified.

China's Demand Factor

On the demand side, China's reduced oil consumption has helped keep oil prices in check, according to Reuters sources and other observers. China saw significant reductions in oil imports in May, reaching an eight-year low. This news is believed to mean a consistent demand decline from the world's largest oil importer, reducing the significance of any supply loss.

Indeed, one Reuters source suggested that when considering China's reduced demand, the overall imbalance in the oil market might only be 2 million barrels per day.

"This is a sign that the commercial oil market is currently well-supplied, showing how the world has adapted to the shock," an analyst at SEB told Reuters, commenting on the oil price decline over the past two months.

Adapting to the Oil Shock

The world has indeed adapted to this shock, with Asian governments particularly active in adaptation activities due to the continent's overwhelming dependence on Middle Eastern oil. Adaptation measures include fuel sales limits, price increases and subsidies, and recommendations to save fuel as much as possible.

Asia has also seen a change in supplier base due to the war, with the U.S. increasing its market share in the region's oil import mix - at a cost. U.S. crude oil imports have surged to compensate for the barrels lost from Iraq, Iran, UAE, Kuwait, and other Gulf countries. But the U.S. has had to use its own reserves to meet demand, causing these reserves to fall to levels near the "danger zone" that some analysts have called, according to Reuters reports.

Global Oil Inventories - The Only Remaining Concern

The level of global crude oil inventories appears to be the only remaining concern, as the figures on Hormuz disruption are being adjusted, disputed, and rejected. The lower these inventory levels, the more oil prices would spike as the low inventory situation becomes apparent.

Chevron's CEO warned about this early this month, saying "Buffers and shock absorbers are being drawn down and the market's ability to absorb this imbalance is diminishing sharply today compared to when we started and in the coming weeks, we may see these pressures transmitted more directly to physical prices, and I expect more upward pressure as we move into June and certainly into July."

A senior Exxon executive also warned that inventory depletion would not be good for oil prices.

Future of the Oil Market

With the Hormuz disruption figures being adjusted, disputed, and rejected, and reports suggesting an impending agreement between the U.S. and Iran, the oil market may slide deeper into a sense of security. Whether this feeling is well-founded remains to be seen.