Morgan Stanley Warns of Depleting Oil Buffers Amid Hormuz Closure

Morgan Stanley analysts are cautioning that market buffers, which have thus far mitigated a sharp rally in oil futures, could be exhausted before the Strait of Hormuz, a critical global oil chokepoint, is reopened. The investment bank describes the current situation as a “race against time” for global oil markets. Since the closure of the Strait of Hormuz, the market has seen a confluence of factors that have prevented a significant price surge. Notably, reduced crude oil imports by China, a major global consumer, and a concurrent increase in crude exports from the United States have acted as key shock absorbers. These dynamics have collectively helped to offset the substantial supply disruption stemming from the strait's closure. However, Morgan Stanley's analysis indicates that this compensatory capacity is finite. Should the Strait of Hormuz remain inaccessible to shipping through the end of June, these existing market buffers are projected to be fully depleted. This depletion would remove the primary mechanisms currently preventing a significant upward movement in oil prices, potentially leading to a more volatile and elevated pricing environment for crude futures. The prospect of dwindling buffers highlights the fragility of the current supply-demand balance in the face of protracted geopolitical disruptions. The global energy market's reliance on these temporary offsets underscores the potential for rapid price adjustments if the chokepoint remains closed beyond the anticipated timeframe.