RE: OIL Prices are going to spike hard and soon....14 May 2026 16:03
People should read the latest MS Oil Manual. Extracts:
"The United States' 3.8 mb/d increase in exports and China's 5.5 mb/d cut in imports have
shielded the rest of the world from 9.3 mb/d of tightness — a very significant amount.
With some draws in land-based storage as well as modest demand erosion elsewhere, the
market has found a way of dealing with the Hormuz shock for now, and a sharper rally in
prices has been avoided. However, this raises a critical question:
What will come to an end first? The effective closure of the Strait of Hormuz? Or the US and/or China's ability to sustain their current export and import flows?
China appears to have ample inventory. To be clear, we have little visibility on China's
true inventory situation in real time. Satellite data of floating roof tanks suggests that
China entered the conflict with above-normal inventories. The same data suggests that
inventories have recently continued to build, but that seems wholly inconsistent with the
5.5 mb/d decline in net imports. In the end, we have greater confidence in the tanker flow
data than in the inventory data. There has probably been some demand erosion, but we
would still suspect that China's inventories are drawing at a relatively rapid pace by now.
(There may have been a swap from, say, crude stored in underground caverns into floating
roof tanks that could explain the data above).
Still, we estimate that China entered 2026 with 1.0–1.5 bn barrels of crude oil in storage,
and it likely holds some refined product inventories as well. Part of this is simply needed
for operational reasons, but even if China's inventories are drawing at a rate of several
million barrels per day, it appears that the country could sustain the current situation for
months, possibly the balance of the year.
The US export valve remains open, but its inventories are under pressure. Domestic
crude production has not grown meaningfully recently, so the export increase is
overwhelmingly coming from inventories, including the US SPR. EIA weekly data show
diesel inventories at the lowest level for the time of year since 2005, gasoline inventories
below the five-year seasonal range (after sitting above the range earlier this year), and
crude oil stocks drawing meaningfully. The ability of the US to continue this elevated level
of exports is hard to gauge but appears under more pressure.
Base case unchanged. In our base case, the Strait opens before the US needs to curtail
exports and/or China needs to defend its imports. Our base case continues to assume that
the Strait of Hormuz remains effectively closed through end-May, with 70% of pre-conflict
flows restored over the subsequent three months and the remaining 30% over the three
months thereafter — full recovery by November. In that scenario, both the United States
and China can probably sustain elevated exports and depressed imports, respectively, for
the few weeks involved. "
Sign In
Follow the stocks
