Hormuz Undercurrent: Crude Supply Recovers, Yet Inventories Hit a Seven-Year Low

On the supply side, traffic through the Strait of Hormuz has significantly recovered; U.S. Secretary of State Rubio stated that Iran has 'completely lost control over the strait,' and 'nearly as much oil is now flowing out as before the conflict erupted.' Iran, however, swiftly responded that a few 'illegal shipping lanes' within the strait would soon be closed. Maritime security sources reported that last week’s tanker attacks in the strait reached the highest level since the war began. More critically, the supply recovery heavily relies on inefficient shuttle transfers: because buyers’ vessels are unwilling to risk entering the strait, oil-producing countries must dispatch very large crude carriers (VLCCs) into the Gulf to load oil, then conduct ship-to-ship transfers offshore in the Gulf of Oman. Freight rates for VLCCs traveling from the Persian Gulf to East Asia have surged to a record high of nearly $1.4 million per day. The oil crisis has effectively evolved into a shipping crisis. Regarding OPEC+, seven major producers decided to maintain current output levels unchanged in November; the monthly production increases originally scheduled from April to September this year were largely unimplemented due to Middle Eastern hostilities, and Gulf-region exporters’ export volumes over recent months have remained at only 60%–80% of normal levels. Demand-side divergence is equally striking. OPEC maintains its forecast of 2026 demand growth at 1.38 million barrels per day (bpd), while the IEA downgraded its projection to a decline of 80,000 bpd, and the EIA revised it upward to growth of 600,000 bpd. The IEA’s downward revision is especially noteworthy: canceled Middle Eastern flights have dampened jet fuel demand; a sharp drop in liquefied petroleum gas (LPG) supply has forced petrochemical plants to cut output; and energy security risks loom over India, East Africa, and other regions. The global economic drag from high oil prices is becoming evident—the cumulative additional cost borne by fossil-fuel-importing countries has exceeded $330 billion. Inventories and risk premiums constitute the core support for elevated oil prices. Although supply flows have recovered, globally observable oil inventories remain near their lowest level since data collection began in 2017. For the week ending October 2, U.S. commercial crude inventories fell by 3.2 million barrels to 424.1 million barrels—far exceeding market expectations—while distillate inventories remained 12% below their five-year average. Goldman Sachs’ October 8 research report noted that the average risk premium embedded in Brent crude’s term structure for September reached $22 per barrel—the second-highest monthly level on record, surpassed only by April this year and even exceeding the peak observed during the initial phase of the Russia-Ukraine war in 2022. Its model indicates that for every 100-million-barrel reduction in OECD commercial oil inventories, the fair value of Brent crude rises by approximately $7.9 per barrel.

Are Rising Oil Prices Reigniting Inflation? What Signal Are Global Assets Awaiting Ahead of the Fed’s Policy Meeting?

Word count: 3,636; reading time approx. 19 minutes Are Rising Oil Prices Reigniting Inflation? What Signal Are Global Assets Awaiting Ahead of the Fed’s Policy Meeting? Executive Summary: High oil prices are re-entering the center of global asset pricing—but what markets truly fear is not oil prices themselves, but whether an energy shock could propagate, via diesel, transportation, manufacturing, and service costs, into more persistent core inflation. Reports from Goldman Sachs, Morgan Stanley, and Bank of America indicate that oil-supply risks, the U.S. interest-rate path, and long-end U.S. Treasury yields are mutually reinforcing. Yet important disagreements persist among institutions: a one-off ‘credibility-driven’ rate hike does not equate to a new cycle of consecutive tightening. Rising oil prices: Markets are pricing in 'persistence' Ahead of the Federal Reserve’s policy meeting, oil prices have once again become a pivotal variable across global markets. Goldman Sachs’ Asia-Pacific Weekly Report dated September 14 noted that Brent crude briefly surged to $109 per barrel, pushing the market-implied probability of a Fed rate hike in September up to 90%; global bond markets also came under broad pressure amid inflation and fiscal concerns. Oil prices, inflation expectations, and bond yields are no longer three independent variables. Yet the core driver of this rally is not simply 'rising crude prices.' Goldman Sachs’ September 11 Oil Products Tracker report pointed out that supply losses from Middle Eastern and Russian refineries, counter-seasonal declines in diesel inventories, and geopolitical risk premiums have collectively driven up diesel prices and refining margins. The report argues that even if Chinese refined-product exports recover later, they will likely fail to fully offset the export losses from the Middle East and Russia. This distinction is critical. Crude price increases affect inflation only after passing through gasoline, diesel, transport, and manufacturing-cost channels—gradually. In contrast, tightness in refined-product supply can manifest more rapidly in household mobility, logistics, and corporate costs. In other words, markets are currently less concerned about a short-lived spike followed by an immediate reversal, and more worried about whether energy-supply uncertainty will keep prices elevated for longer. Morgan Stanley’s August 23 report, 'The Oil Manual,' offered a more bearish supply-demand assessment: tightening supply, falling inventories, and diminishing strategic petroleum reserve (SPR) buffers may push the market into a supply deficit during Q4 2026 and Q1 2027—with Brent potentially reaching $100 per barrel in Q4. Its September 4 energy report further noted that Brent and WTI have risen over 30% since early July, while globally visible inventories continue to decline. Collectively, these reports point to one conclusion: oil prices’ near-term direction remains highly dependent on Middle Eastern developments—but supply restoration, inventory replenishment, and transport normalization all require time. Thus, even if oil prices retreat from current highs, inflation expectations and risk premiums may not dissipate in tandem. Can oil-driven 'energy inflation' evolve into 'core inflation'? Oil’s impact on inflation unfolds roughly in two phases. Phase One: Direct Impact. Rising prices for gasoline, diesel, and heating fuels directly lift consumer price indices (CPI); simultaneously, aviation, logistics, warehousing, and road-transportation costs are also affected. Goldman Sachs’ oil-products report notes that U.S. retail diesel prices have climbed to $6 per gallon, while diesel inventories in the U.S. and Europe stand below year-ago levels—and refinery and refined-product market tightness is markedly more severe than implied by crude-price volatility alone.

Oil inventory drawdowns leave global economy vulnerable to fresh shocks – IMF

Oct 14, 2026

The IMF warns that dwindling oil and gas inventories following Middle East conflicts leave the global economy vulnerable to future supply shocks. Depleted reserves risk nonlinear price adjustments despite resilient growth forecasts supported by emergency supply rerouting.

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