Oil Hits $111 as Shortage Fears Mount

Brent crude climbed to $111.50 per barrel in early Asian trade Monday as drone attacks on both the UAE and Saudi Arabia dimmed hopes of any de-escalation in the region, while the lack of a breakthrough on an Iran agreement during Trump's visit to China added to upward pressure for oil prices . WTI front-month futures were trading at $108.20 per barrel, up 2.59% on the session , according to OilPrice.com.

The rally comes despite current market data showing WTI at $71.50 per barrel and Brent at $75.20 per barrel as of Sunday afternoon—suggesting extreme volatility as Asian markets opened Monday with fresh geopolitical catalysts. Trump's warning to Iran over the weekend signals that the impasse between Washington and Tehran over ending the war could deteriorate into resumption of armed conflict , CNBC reported.

Economists at Aberdeen are now examining a scenario where Brent crude surges to $180 per barrel if traffic through the Strait of Hormuz remains constrained for an extended period, while the International Energy Agency estimated a 6 mb/d gap from March to June between supply and demand , according to the Financial Times.

Can Global Inventories Cushion the Blow?

Kpler reported earlier this month the cumulative loss of oil supply in the Middle East since February 28 had hit 782 million barrels as of May 8 and was on track to expand to 1 billion barrels by the end of the month . Saudi Arabia is losing over 3 million barrels daily, Iraq is producing 2.88 million barrels daily less, and Iran is at 1.69 million barrels daily lower output, while Kuwait has suffered a decline of 1.75 million barrels daily , OilPrice.com reported.

Kpler estimated cumulative draws from onshore storage at 60 million barrels since late March, which leaves 3 billion barrels still in storage—or whatever fraction of that volume is accessible . But Aramco's CEO pointed out that traders may be overestimating the availability of oil in storage, noting that not all of the barrels counted as being in storage are actually accessible—only a fraction of it is .

Total global oil stocks, including crude and refined products held both on land and at sea, are estimated at about 101 days of demand currently and could fall to 98 days by end of May, though the aggregate figures mask sharper shortages in specific regions and products , Goldman Sachs wrote in a note reported by CNBC.

Why Is China Cutting Refining Now?

As prices spiked amid the Hormuz crisis, China abruptly reversed course, with crude imports collapsing by around 20% year-on-year and seaborne volumes dropping to about 8 million barrels per day—the lowest level since 2022 , according to Energy News Beat. Reuters reported that China expanded its strategic crude oil inventories in early 2026, adding 1.24 million barrels daily to storage before the crisis escalated.

Rather than chasing spot market barrels, Beijing released inventory into its domestic refining system and sharply curtailed exports of refined products like gasoline, diesel, and jet fuel to shield its own economy, turning China into what analyst Cyril Widdershoven calls the "invisible central banker" of oil markets by absorbing shocks for its domestic market while exporting volatility elsewhere .

In April, Middle East and feedstock-constrained refineries in Asia have cut runs by around 6 mb/d to 77.2 mb/d, with global crude runs now expected to decline by 1 mb/d on average in 2026 to 82.9 mb/d , the IEA reported in its April Oil Market Report.

Can Europe Afford Its AI Ambitions?

While oil markets grapple with supply shocks, Europe wants to position itself as a leader in AI and compete with the U.S. and China, but experts told CNBC that its soaring energy prices could undermine those ambitions, as power-hungry data centers mean investments are particularly sensitive to the cost of energy, and Europe's prices are surging amid the U.S.-Iran war .

Michael Brown, global investment strategist at Franklin Templeton, told CNBC that if he were making the next $7 billion data center, it would be in the U.S. or China, while HEC Paris associate professor Olivier Darmouni said there's been a renewed interest in electrifying the economy after the recent Iran crisis .

The cost of securing data center capacity in Europe's five largest markets—Frankfurt, London, Amsterdam, Paris, and Dublin—is set to rise by 12% in 2026 , according to research from CBRE reported by CNBC. OpenAI has been putting their UK and Norway investments on hold due to high electricity prices , a European energy policy report noted.

China and the United States are the most significant regions for data centre electricity consumption growth, accounting for nearly 80% of global growth to 2030, with consumption increasing by around 240 TWh in the United States and around 175 TWh in China, while in Europe it grows by more than 45 TWh , according to IEA analysis.

What Changed This Week

The convergence of three crises is reshaping global energy markets. Oil prices broke through $111 as drone strikes on Gulf infrastructure eliminated hopes for near-term de-escalation, while China's strategic pivot from buyer to inventory manager removed a key source of demand visibility just as physical markets tightened. Meanwhile, Europe's AI infrastructure race hit an energy affordability wall, with high electricity costs forcing project delays and threatening the continent's competitiveness in the technology sector that will define the next decade.

What to Watch

The UAE is formally announcing construction of another pipeline to bypass the Strait of Hormuz, expanding its Fujairah pipeline and doubling bypass capacity to 3-3.4 million bpd, with the West-East pipeline expansion expected to become operational in 2027 , The National reported. Nearly 80 countries have now introduced emergency measures to protect their economies from the looming energy crisis , according to OilPrice.com. Watch for the IEA's next monthly oil market report and any signals from Trump-Xi communications on Iran negotiations. Goldman Sachs warned that easily accessible buffers of refined products are being depleted rapidly, particularly in petrochemical feedstocks such as naphtha and LPG, as well as jet fuel —meaning product shortages could emerge before crude supplies run critically low.