By Despite enduring a rollercoaster ride since late February, the global oil market’s price reaction to the largest supply disruption in history has been remarkably muted.
This calm, initially attributable to existing market buffers, is now precarious as the system that stabilised prices for four weeks has fundamentally changed.
The oil market absorbed the disruption in the Strait of Hormuz rather than underreacting to it, according to Rystad Energy’s chief oil analyst Paolo Rodriguez-Masiu.
“For nearly four weeks, markets have shown remarkable resilience in the face of disruption, supported by a combination of pre-war surplus, crude-on-water, and policy barrels that provided a temporary buffer and kept prices contained,” Rodriguez-Masio said in an emailed commentary.
“That phase is now ending.”
Market buffer vanishes
According to Rystad Energy, the buffer that the oil market had at the beginning of the year is now fragile as inventories drop, with most spare capacity trapped behind the Strait of Hormuz.
Despite the loss of a substantial 17.8 million barrels per day of trade flow from the Strait of Hormuz for almost a month (including 14.2 million bpd of crude and condensates), the crude oil market has shown impressive durability, according to Rystad Energy.
This muted price reaction was initially possible because the market possessed considerable reserves. However, this critical buffer is now depleted, the Norway-based energy intelligence agency said.
The global oil system has lost the capacity to absorb shocks it had just three weeks ago.
Consequently, any secondary disruption—such as a stoppage at the CPC pipeline (Caspian through Russia), a severe hurricane season, or damage to infrastructure at Yanbu or Fujairah—which would have previously resulted in a controlled, linear price increase, would now severely impact a market with no remaining shock absorption capacity.
“While the US government’s decision to extend the ultimatum once again until after Easter is likely to prevent further escalation in the short term, the oil markets remain nervous and driven by news due to the current massive supply disruptions,” Barbara Lambrecht, commodity analyst at Commerzbank AG, said in a report.
The market was initially well-prepared for a supply disruption, anticipating a crude oil surplus of approximately 3.0 million bpd this year.
This readiness was supported by healthy spare production capacity, though concentrated in specific areas, and ample onshore and offshore inventories.
These combined reserves of “extra” barrels enabled the market to absorb a supply shock that, under different starting conditions, would have led to a much more dramatic price spike.
Those buffers are now largely consumed, and the system that absorbed the initial shock is not the system operating today.
Policy responses insufficient to offset massive supply loss
The Strait of Hormuz disruption has resulted in a loss of nearly 500 million barrels of total liquids, according to the agency. This volume has been offset by a combined policy response, which includes strategic petroleum reserve (SPR) releases by the International Energy Agency (IEA) and sanctions waivers for Russian and Iranian crude.
However, the release rate of those policy barrels, excluding offshore inventories, is significantly slower than the combined loss rate of crude and oil products, which stands at 17.8 million bpd, Rystad added.
“In past coordinated releases, total IEA flows have not reached above the 2.0 million bpd mark of sustained flows, which provides a good empirical reference point to assume that the actual deliverable volumes at system level will not hover much above that level,” the agency said.
The discrepancy isn’t just about flow rates, though.
The IEA release targets its members, excluding highly exposed nations like Pakistan and India, which get no direct benefit.
China, despite building substantial strategic reserves through early 2026, shows no intent to use them.
India is currently depending on Russian crude held in floating storage, a consequence of a US sanctions waiver. However, only 8.0 million barrels of this supply remain, according to Rystad’s calculations.
Meanwhile, a significantly larger volume of crude is held in floating storage globally, with approximately 34 million barrels from Iran and 21 million barrels from Venezuela, the data showed.
The majority of this Iranian and Venezuelan crude is anticipated to be shipped to China.
Supply chain and price forecast
The extended supply chain length is another critical factor limiting oil price movement.
Despite the Strait of Hormuz being blocked for nearly four weeks, global oil arrivals only recently showed a significant decline, falling about 7.0 million bpd below the three-year average last week, Rystad said.
Arrivals were largely normal during the first three weeks of the disruption.
“The pipeline of barrels already at sea, in combination with floating storage, SPR releases, and the spare production capacity, have collectively provided a buffer that is now being exhausted in real time,” the agency said.
From this week, every day matters.
The oil price showed minimal reaction to the extended ultimatum, suggesting little market confidence in the outcome of negotiations between the US and Iran.
Furthermore, the success of these talks remains uncertain due to the conditions set forth by both the US and Iran to conclude the conflict.
“In our main scenario, in which we assume the war will end in May, we see the price of a barrel of Brent crude falling to $90 by the end of the second quarter,” Commerzbank’s Lambrecht said. Brent crude oil on the Intercontinental Exchange was last at $110.81 per barrel, up 2.6%.
Even with the normalisation of shipping through the Strait of Hormuz, a slow resumption of oil production in the region is anticipated, she added. This is primarily due to the need for longer ramp-up times in production and existing damage to production facilities.
Even after the war concludes, oil prices are likely to be higher than previously forecast. This is primarily because the severe scaling back of production due to the export blockade has led the world to face a significant inventory shortage, according to Lambrecht.
The forthcoming survey-based estimates of OPEC production, due for publication in the next two weeks, will disclose the full scope of the outages that occurred as early as March.
“What is certain is that the outages are growing daily: Iraq, for example, reported that daily production in the key oil fields in the south of the country has now been reduced by 80% to 800,000 barrels,” Lambrecht said.
It is doubtful that the OPEC+ virtual meeting planned for April 5 will occur.
The typical discussion among the eight voluntary output-cutting nations about increasing production is irrelevant, as most have already had to significantly cut output due to the Strait of Hormuz blockade.
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