"Something's wrong"! JPMorgan warns: The oil supply gap is being masked by 'fake demand decline', a bigger shock is coming.

JPMorgan commodities strategist Natasha Kaneva has issued a warning: there is a “big problem” in the global crude oil supply-demand balance. More than 13.7 million barrels per day of supply disruption in April is being interpreted externally as a rapid decline in demand, but the underlying logic is quite the opposite—so-called falling demand is largely just a statistical illusion, with supply shortages presented in the accounts as demand loss. When the market eventually clarifies this confusion, the cost of clearing will be much more severe than currently seen.

From the numbers, JPMorgan estimates observable inventory drawdowns in April at 7.1 million barrels per day; according to Goldman Sachs, if unseen refined product inventories are included, the global daily drawdown was as high as 10.9 million barrels per day, the fastest monthly consumption rate since 2017. Since the outbreak of conflict in the Persian Gulf, cumulative depletion is estimated to have reached 474 million barrels. Meanwhile, Persian Gulf oil flows—including redirected pipelines—have fallen to about 9.3 million barrels per day, only 40% of normal levels.

Kaneva's core judgment is: the global oil demand drop observed in April is about 4.3 million barrels per day, exceeding the peak loss during the 2009 global financial crisis, but current oil prices are not extreme historically, and far from sufficient to explain such a large and rapid collapse in demand. The more plausible explanation is that most of the demand loss is not buyers voluntarily giving up consumption, but a physical supply cutoff directly suppressing actual buying—supply losses are being presented via demand accounts.

This distinction is crucial. It means that the adjustments so far have mainly been borne by vulnerable markets in the Middle East, Asia, and Africa, and the price pain for consumers in Europe and the U.S. has not really begun. Kaneva warns that even with aggressive inventory contributions, about 2 million barrels per day of the supply-demand gap still needs to be filled, and it’s only a matter of time before the U.S. and European markets are forced to participate in adjustment—which means oil prices need to rise further, perhaps sharply. The market will ultimately be forced to clear.

Supply-demand “accounts don’t balance”: traditional buffers exhausted

Kaneva points out in her latest report that the physical laws of the commodities market are inviolable: supply plus inventory reduction equals consumption plus inventory increase. When there’s a production shortfall, the gap does not disappear; the system must sequentially activate spare capacity, draw down inventories, and release reserves, ultimately using high prices to forcibly suppress demand. In this shock, almost every part of this adjustment mechanism has failed.

Supply shocks unfolded at rare scale and speed: global oil supply gap was 9.1 million barrels per day in March, expanding to 13.7 million barrels per day in April. The traditional first line of defense—spare capacity—could not be activated at all. Almost all global spare capacity is concentrated in Saudi Arabia and UAE, both essentially cut off from international markets, making the industry’s traditional shock absorbers useless.

The U.S., as the global marginal supplier, even with substantial price increases, would need 3 to 6 months for scalable shale oil capacity response, with expected contribution only 0.3 to 0.7 million barrels per day; larger increases normally take 6–12 months. Russia’s spare capacity is about 0.3 million barrels per day, but amid ongoing attacks on energy infrastructure, Russia’s supply has declined by about 0.35 million barrels per day in recent weeks. With the first defense line gone, inventory drawdown becomes the only buffer—this is what Kaneva refers to as "the clock starts ticking."

“Pseudo demand drop”: Demand shrinkage on the accounts is in fact a mirror image of the supply gap

JPMorgan data shows that global oil demand averaged a decline of 2.8 million barrels per day in March, widening to 4.3 million barrels per day in April. This scale already exceeds the peak decline of around 2.5 million barrels per day during the 2009 global financial crisis—then caused by global recession and sharp contraction in industrial activity.

What puzzles Kaneva is that this demand drop is happening in a relatively mild price environment. Brent crude futures averaged about $100 per barrel in March and April, with spot prices at $107 in March and about $123 so far in April; refined product prices nearly doubled from pre-war levels, but crude prices historically are not extreme—not enough to explain such a large and rapid demand reduction by themselves.

Kaneva concludes: most demand decrease is not the traditional, price-driven, voluntary demand destruction, but a physical shortage forcing consumption to stop—the buyers are not choosing to buy less because prices are too high, but because there simply is no supply to buy. This "forced demand loss" appears statistically as demand decrease, but is actually a mapping of supply loss onto the demand side of the accounts—a "pseudo demand drop."

Of the April's 4.3 million barrels per day demand loss, 87% is concentrated in the Middle East (directly affected by war), Asia (structurally dependent on Gulf crude and refined products), and Africa (dependent on Gulf middle distillates, thin inventories, limited fiscal capacity). As cargo is shifted to higher-bidding Asian buyers, some demand is directly priced out.

Record inventory drawdown: Operating baseline approaching

This is the clearest real-time warning in the current supply-demand imbalance. JPMorgan estimates observable commercial and strategic inventories drew down 4 million barrels per day in March, surging to 7.1 million barrels per day in April. JPMorgan also points out that, due to limited visibility on some refined product inventories, the actual drawdown could be significantly higher than reported data.

Goldman Sachs corroborates this. According to Goldman, daily consumption of visible inventories in April was 6.3 million barrels per day; if non-OECD countries' unseen refined products are included, total daily drawdown reached 10.9 million barrels per day—the largest monthly consumption rate since 2017. Since the Persian Gulf conflict broke out, cumulative depletion is estimated at 474 million barrels.

Supply-side pressures are likewise severe. Iranian oil exports have plunged to about 0.3 million barrels per day, U.S. exports have hit pipeline limits. Goldman estimates that even if the Strait of Hormuz fully reopens, resumption is constrained by capacity restart, tanker transit times, and pipeline rates, so flow recovery will be gradual and global inventory depletion may continue into May or even longer.

It is worth noting that inventory drawdown has a natural, non-surpassable minimum—operating lowest inventory levels. Once this threshold is reached, and if supply cannot recover, the only rebalancing mechanism will be a forced collapse in demand. This is what Kaneva describes as the "trigger condition" for a bigger shock.

Market forced to clear: Shock will spread to Europe and America

Kaneva’s calculation reveals an unavoidable math problem: about 14 million barrels per day of supply has been removed, and even assuming an aggressive 8 million barrels per day inventory contribution, there’s still a market gap of about 2 million barrels per day that must be filled by even bigger demand cuts or more aggressive inventory drawdowns.

She warns this gap is "too big for emerging markets to absorb alone." Europe and the U.S. will inevitably need to participate in adjustment—and their participation premises further (even sharp) oil price increases. The European middle distillate and jet fuel markets are already tightening; the Americas, thanks to relatively flexible domestic supplies, are less affected short-term, but rising U.S. pump prices have started suppressing elastic driving demand, and rising airfares are softening jet fuel demand.

Structurally, adjustments appear first in low-margin, price-sensitive areas, especially petrochemical feedstocks and jet fuel. Shortages of Gulf-origin LPG, ethane, and naphtha have already forced PDH and steam cracker plants across Asia to sharply cut operations or shut down. This petrochemical-driven demand shrinkage accounts for about 55% of April's 4.3 million barrels per day loss. Indian official data shows LPG consumption dropped 13% year-on-year in March. Jet fuel accounts for about 11% of total demand loss, mainly reflecting flight suspensions in the Middle East; Kaneva expects Asian and European airlines to cut capacity further in May, with jet fuel demand continuing to weaken.

Gasoline prices are currently rising much slower than middle distillates, reflecting lower dependence on Gulf supplies. But Kaneva warns as refinery constraints tighten overall refined product balances, this relative protection will gradually disappear—especially as the U.S. summer driving season approaches. Kaneva’s final conclusion echoes commodity market iron laws: the market will clear, the cost will be much greater than the current accounts show, and when that happens, both consumers and financial markets will be unable to escape.

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