S&P Global: Oil markets face 'double depletion'
Global oil markets are entering a precarious phase marked by a 'double depletion' dynamic, in which a sharp contraction in demand is occurring simultaneously with an unprecedented drawdown in crude inventories, according to a recent analysis from S&P Global Energy.
These signs indicate the full impact of the current supply disruption—described as the largest in history—has not yet fully materialized, S&P said.
Oil-demand drop accelerates in second quarter
Global liquids demand is projected to fall in second-quarter 2026 in what could be the sharpest contraction outside of the COVID-19 pandemic. For the full year, demand growth is expected to lag 2025 levels, reflecting weakened consumption across major economies.
“Oil demand is currently experiencing the sharpest fall ever apart from the 2020 COVID-19 experience, with total liquids demand in the second quarter of 2026 projected to be nearly 5 million b/d less than a year earlier,” S&P Global Energy said, adding that full-year 2026 liquids demand growth is now expected to fall short of 2025 levels by nearly 2 million b/d.
At the same time, global crude inventories declined by nearly 200 million bbl in April alone, equivalent to a draw rate of about 6.6 million b/d. The second quarter is now on track to post the largest quarterly inventory draw on record, averaging about 5.5 million b/d.
“While there have been significant impacts to date, the oil market has remained somewhat cushioned from the full impact of the loss of 15 million b/d in supply,” said Jim Burkhard, vice-president and global head of crude oil research at S&P Global Energy. “That the cumulative supply loss is now approaching 1 billion bbl is a staggering figure that inventories cannot cover indefinitely. An inevitable market reckoning is coming.”
Inventories drain as supply loss outpaces prices
Despite these pressures, benchmark Brent crude prices—though elevated—have not yet reached extremes by historical standards. Brent has traded above $100/bbl consistently since mid-March, compared with an average of $71/bbl in February. However, the analysis notes that prices above $100/bbl were sustained for extended periods between 2011 and 2014 without comparable supply disruptions. Adjusted for inflation, the 2011 average of $111/bbl would equate to roughly $160/bbl in today’s terms.
An immediate reopening of the Strait of Hormuz would not be a quick fix at this stage, the analysis notes. S&P Global Energy expects that, if Hormuz were to be reopened, it would take an additional 7 months at minimum to fully restore upstream production, assuming no permanent damage and supply chains operate smoothly. A recovery could take longer if there is damage to ports or other transport and loading infrastructure. The longer the strait remains closed, the more likely the supply crisis extends into late 2026 and into 2027.
“Before the war, any market veteran would not have been surprised if crude oil prices soared far higher than they have based on a 2-month loss of 15 million b/d,” Burkhard said. “What is a tremendous curtailment of demand is still being outstripped by the loss of supply. That means that higher crude oil and refined product prices are still to come.”
The analysis identifies two key indicators to watch in the months ahead: US inventory trends and buying behavior from major importers, particularly China.
“US crude stock levels do not yet show a strong pull from the global oil market to offset the loss of Middle East supply. Larger-than-typical declines in crude oil and product inventories, along with rising export volumes, would be signs that physical market pressure in Asia, the Middle East and Europe are reaching the US,” Burkhard said.
“China’s buying and trading behavior will also be a major factor. In the 12 months before the Middle East war, China imported 11 million to 13 million b/d of crude oil each month. A projected cut of 2.5 million b/d in crude imports, lower refinery runs and the use of product stockpiles could restrain upward pressure on crude oil prices. A burst of buying from China would have the opposite effect.”