JPMorgan Quantifies Oil Supply Shock: Global Oil Supply Deficit May Persist at Tens of Millions of Barrels Per Day, Policy Tools May Struggle to Fill the Gap

The global energy market is facing an unprecedented supply shock.

Natasha Kaneva, Head of Commodities Strategy at J.P. Morgan, stated in her latest report: The current global oil supply gap has reached 16 million barrels per day, and it is expected to remain around 10 million barrels per day through April this year. This scale far exceeds any single supply disruption in history, and policy tools are insufficient to bridge this gap.

Uncertain is the timing; the certainty is the size of the gap.

J.P. Morgan admits in the report that modeling “unprecedented events” such as the Iran conflict and the Strait of Hormuz blockade has pushed the boundaries of traditional analysis frameworks. No past supply interruption has matched 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 the conflict’s length, while Iran seems to believe time is on its side. More importantly, even if hostilities cease, the Strait of Hormuz may not immediately return to normal navigation.

However, the structure of the shock is relatively clear: which barrels are at risk, which capacities can be rerouted or replaced, the limits of strategic reserves, and the boundaries of policy tools—these are quantifiable constraints. The timeline is uncertain, but the arithmetic does not lie.

Southeast Asian commercial inventories may be significantly depleted

Disruptions in Middle Eastern flows have quickly translated into direct shortages of crude oil and refined products in Asia. Southeast Asia, heavily reliant on imports with limited domestic refining buffers, is particularly vulnerable.

Countries such as Indonesia, Thailand, Sri Lanka, Vietnam, Malaysia, Bangladesh, the Philippines, Myanmar, and Pakistan are likely to need to significantly draw down commercial refined product inventories—estimated at around 129 million barrels—and could contribute approximately 1 million barrels per day in supply replenishment over the coming months.

Floating Storage and Sanctions Exemptions: Marginal Impact Limited

Iran holds about 38 million barrels of floating crude and refined products, while Russia has about 17 million barrels. Together, these two countries could release roughly 500,000 barrels per day into the market.

However, the marginal impact of officially lifting sanctions on Iran and Russia’s crude oil supplies may be limited—since most of these goods have already been flowing to the market through alternative channels.

The truly meaningful aspect is that: the formal lifting of sanctions could allow large state-owned refineries in India to more confidently and extensively engage in procurement, replacing more cautious private buyers.

Considering all these buffer mechanisms, J.P. Morgan believes that policy tools can only buffer the shock but cannot eliminate it. The supply gap of about 10 million barrels per day is likely to persist.

In this context, the only remaining system adjustment mechanism is price increases and the resulting demand destruction. Rising oil prices combined with tightening physical supplies have already begun triggering adjustments across the entire system.

Demand destruction is already underway: chemicals, aviation, and agriculture are under full pressure

Under supply constraints, refineries are sharply reducing operations due to raw material shortages and inverted margins, leading to significant declines in product output, further exacerbating the already tight refined product markets.

From a product structure perspective, the impact of the Hormuz blockade is highly concentrated in naphtha, liquefied petroleum gas (LPG), and jet fuel.

The chemical industry is hit particularly hard, as naphtha and LPG are core raw materials for ethylene and other chemicals; currently, about 5% of global ethylene capacity in Japan and South Korea has been shut down.

The aviation sector is also a critical pressure point, as jet fuel costs typically account for over 20% of operating expenses. Airlines are reducing routes, with Africa and Europe being especially vulnerable.

Gasoline and diesel, as the largest demand components, can be suppressed through coordinated policies, including mandatory work-from-home orders, speed limits, and license plate restrictions. Diesel shortages will also directly impact agriculture, construction, and transportation industries, with heavy equipment like tractors and excavators facing substantial fuel supply pressures.

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