• Global oil inventories are falling toward multi-year lows, with UBS estimating stockpiles could hit near-record lows of 7.6 billion barrels by the end of May.
  • The bank warns that if the Strait of Hormuz remains closed, panic buying and extreme price swings could follow.
  • Temporary relief from weaker demand, strategic reserve releases, and sanctions waivers is fading, leaving supply buffers largely exhausted.

Tighter Supply Cushions Raise Stakes

Global oil inventories are dwindling rapidly, moving toward levels not seen in a decade, according to UBS. The bank estimates stockpiles dropped from 8.2 billion barrels in February to around 7.8 billion by April, and could slide further to 7.6 billion by the end of May—near record lows. Further declines into June are possible, the bank said.

"These are dangerously low buffers," a UBS analyst said, speaking on condition of anonymity. "Any sustained disruption, especially at Hormuz, could trigger a panic."

The drawdown reflects a tightening market where temporary relief from weaker demand, strategic petroleum reserve releases, and sanctions waivers on Iranian and Russian oil is rapidly fading, according to the bank.

Hormuz Closure Looms as Catalyst

The Strait of Hormuz, a vital chokepoint for about 20% of global oil shipments, remains the focal point of geopolitical risk. UBS warned that if the waterway remains closed, extreme volatility and panic purchasing could ensue.

"Without a deal to reopen the strait, the market faces a real risk of price spikes," the analyst added. "The inventory cushion is gone."

Market stress indicators have already shown sensitivity, with crude futures swinging sharply on headlines from the region. The risk premium attached to Middle East tensions has persisted, reinforcing price gyrations.

Implications for Policymakers and Traders

The prolonged tightness may increase economic pressure on the Trump administration to reach a deal with Iran and restore the strait's operations, UBS suggested. Without progress, the market could experience sharp and sudden price moves.

Traders are closely watching OPEC+ policy shifts and any changes to sanctions regimes. Strategic reserve releases by consumer countries could provide temporary relief, but analysts say their capacity is limited.

Correction: An earlier version of this article misstated the estimated inventory level for February. It is 8.2 billion barrels.