Key facts
- Global oil inventories are critically low.
- Exxon Mobil warns dated Brent could reach $150-$160 a barrel.
- US crude inventories have fallen for eight straight weeks.
- The conflict has embedded a lasting risk premium in crude oil prices.
- A deal to reopen tanker traffic through the Strait of Hormuz remains elusive.
Global oil inventories are critically low, with warnings from industry executives and analysts that another oil price shock could occur in the coming weeks, potentially disrupting financial markets and economic growth. Exxon Mobil's senior vice president, Neil Chapman, stated that inventory levels are "really, really low" and could push dated Brent crude prices to $150 or $160 a barrel if they fall much further. US crude inventories, including the Strategic Petroleum Reserve, have fallen for eight consecutive weeks to 791 million barrels as of May 29. The International Energy Agency (IEA) has coordinated a record release of 400 million barrels of oil to combat rising prices, alongside drawdowns from US reserves and a drop in Chinese seaborne crude imports to a near 10-year low in May. Analysts at JPMorgan predict oil prices could "rapidly appreciate" by the latter half of June unless tanker traffic through the Strait of Hormuz normalizes. The conflict has embedded a lasting risk premium in crude, with potential knock-on effects for inflation, bond yields, and consumer spending. Vanguard estimates that if crude prices reach $120 per barrel and remain there for a year, US economic growth could slow by approximately 0.4 percentage points. Consumers retain some buffer, but prolonged high prices could slow consumer spending further.
Separately, global nitrogen prices have risen near their record of $925 per tonne following India's tender for 2.5 million metric tons of urea, the largest single tender in history. Despite this, analysts are noting the effectiveness of proactive measures taken by countries like China, which has regulated fertilizer exports to ensure domestic supplies and has been prepared for market shocks. Chinese urea futures have trended lower since the early days of the Russia-Ukraine war, partly due to Beijing's policies. The article also touches on the strategic importance of water in the Middle East, suggesting it could be a critical factor in regional conflicts, potentially more so than oil or natural gas, with risks including deliberate targeting of desalination plants or accidental damage.