JPMorgan Quantifies Oil Shock: Global Oil Supply Gap May Persist at 10 Million Barrels Per Day, Policy Tools Unlikely to Fill It

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The global energy market is facing an unprecedented supply shock.

Natasha Kaneva, Head of Commodities Strategy at J.P. Morgan, pointed out in her latest report: The current global oil supply shortfall has reached 16 million barrels per day, and it is expected to remain around 10 million barrels per day in April this year. This scale far exceeds any individual supply disruption in history, and the buffer provided by policy tools is far from sufficient to bridge this gap.

Uncertain Timing, Certain Shortfall Scale

J.P. Morgan admits in the report that modeling “unprecedented events” like the Iran war and the blockade of the Strait of Hormuz has reached the limits of traditional analytical frameworks. Historically, there has never been a supply disruption that matches this in scale, geopolitical complexity, and strategic impact.

The greatest uncertainty lies in the duration: The U.S. and Israel have sent mixed signals about how long the conflict will last, while Iran itself seems to believe time is on its side. More importantly, even if hostilities cease, the Strait of Hormuz may not immediately resume normal navigation.

Nevertheless, the structure of the shock is relatively clear: which barrels are at risk, which production can be rerouted or substituted, where strategic reserves cap out, where policy tools’ boundaries lie—these are quantifiable constraints. The timeline is uncertain, but arithmetic doesn’t lie.

Southeast Asian Commercial Inventories May Be Severely Depleted

The interruption of Middle Eastern flows has quickly translated into direct shortages of crude oil and refined products in Asia. Southeast Asia, due to its heavy dependence on imports and limited domestic refining buffer, is particularly exposed.

Countries like Indonesia, Thailand, Sri Lanka, Vietnam, Malaysia, Bangladesh, Philippines, Myanmar, and Pakistan may have to substantially draw on commercial inventories of refined products—these inventories are estimated at about 129 million barrels, potentially contributing roughly 1 million barrels per day as supplementary supply over the next few months.

Floating Oil Storage and Sanctions Exemptions: Limited Marginal Impact

Iran holds about 38 million barrels of crude oil and refined products in floating storage, and Russia another 17 million barrels. Together, the two countries could release about 500,000 barrels per day to the market.

However, formally lifting sanctions on Iranian and Russian crude may have limited marginal impact on actual supply—since these shipments have mostly been continuously flowing to the market through alternative channels.

The truly meaningful aspect is that formally lifting sanctions may reassure major Indian state-owned refineries to step in earlier and in greater volume, replacing previously more cautious private buyers.

Taking all these buffer mechanisms together, J.P. Morgan believes policy tools can only buffer the shock, not eliminate it. The supply shortfall of about 10 million barrels per day is likely to persist.

Against this backdrop, the only remaining adjustment mechanism in the system is price increases and the resulting demand destruction. High oil prices and tighter physical supply have already started triggering adjustments across the entire system.

Demand Destruction Arrives: Chemicals, Aviation, and Agriculture Under Full Pressure

With supply restricted, refineries sharply reduce operating rates due to raw material scarcity and inverted costs, product output drops significantly, further amplifying the already severe shortage in the refined products market.

In terms of product structure, the impact of the Hormuz blockade is highly concentrated on naphtha, liquefied petroleum gas (LPG), and jet fuel.

The chemical industry is especially hard-hit, as naphtha and LPG are core feedstocks for chemicals like ethylene; currently, about 5% of global ethylene capacity in Japan and South Korea has already been shut down.

The aviation industry is also a significant pressure point. Jet fuel typically accounts for over 20% of operating costs, and airlines are cutting flight routes, with Africa and Europe particularly vulnerable.

Gasoline and diesel, as the largest demand categories, can be curbed through coordinated policies—including mandatory work-from-home orders, lowering speed limits, and restricting driving based on license plate numbers. Diesel shortages will directly impact agriculture, construction, and transportation sectors; fuel supply for heavy equipment like tractors and excavators will face real pressure.

Risk Reminder and DisclaimerThe market carries risks; investments must be made cautiously. This article does not constitute personal investment advice and does not consider the specific investment objectives, financial condition, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article fit their particular circumstances. Invest accordingly at your own risk. ```