Brent crude lost $18 in three weeks. Japan's April oil imports fell to a 47-year low. And Chevron's CEO is warning that physical shortages will force economies to slow.
The oil market is pricing peace while the physical world is running out of barrels. According to market data, Brent crude traded at $75.20 per barrel on Thursday, down 19% for May—the steepest monthly decline since the pandemic, OilPrice.com reported. Yet the Strait of Hormuz, which normally carries 20% of global oil supply, remains effectively closed after ten weeks. Japan imported just 850,000 barrels per day in April, down 66% year-on-year, according to data from Japan's Ministry of Economy, Trade and Industry. That's the lowest volume since 1979, when record-keeping began.
The disconnect is stark. Traders are betting on a U.S.-Iran ceasefire extension that hasn't been signed. Refiners in Asia are cutting runs because they can't get crude. And the world's largest energy companies are warning that the buffers keeping oil flowing—strategic reserves, commercial inventories, shadow tankers—are nearly exhausted.
Can Diplomacy Outrun Depletion?
Oil prices have tumbled on optimism that Washington and Tehran will agree to a 60-day memorandum of understanding to extend their fragile ceasefire, CNBC reported. President Trump still needs to approve the deal. But even if he does, the physical damage is done. The IEA estimates that cumulative supply losses from Gulf producers already exceed 1 billion barrels, with more than 14 million barrels per day now shut in. Global observed inventories fell by 250 million barrels in March and April alone—a drawdown rate of 4 million barrels per day, according to the IEA's May Oil Market Report.
Chevron CEO Mike Wirth told the Milken Institute on May 4 that "we will start to see physical shortages," adding that "economies are going to have to slow" as demand adjusts to constrained supply. Wirth compared the disruption to the 1970s oil shocks, Reuters reported. Asia will be hit first, he said, given the region's dependence on Gulf crude and refined products. Europe is next—the continent imports 75% of its jet fuel from the Middle East.
The market isn't listening. ING commodities strategists wrote Friday that "the oil market continues to edge lower amid growing optimism that the US and Iran are moving towards a deal." A reopening of the strait would offer immediate relief, they noted, but cautioned that "the recovery is still uncertain."
What's Keeping the Lights On?
Three things have prevented a full-blown crisis so far: inventory drawdowns, alternative supply, and demand destruction. None of them lasts forever.
Japan's experience illustrates the strain. The country's crude imports from the Middle East plunged 67.2% in April compared to the same month in 2025, reaching 3.843 million kiloliters—the lowest since 1979, according to provisional trade data from Japan's Finance Ministry. LNG imports from the region dropped 76.1% as the closed strait trapped about 20% of daily global LNG flows, particularly from Qatar and the UAE. Japan has scrambled to secure alternatives: it received its first U.S. crude shipment in late April and is sourcing oil from Kazakhstan, Azerbaijan, and Latin America. But the 910,000-barrel U.S. cargo represents less than one day of Japan's national consumption.
India has fared better, thanks to years of diversification. As of March 2026, India imports crude from around 40 countries, with approximately 70% of crude now routed through alternative maritime routes that bypass Hormuz, according to India Briefing. India's crude imports still fell 760,000 barrels per day from February to April, the IEA reported, as refiners cut runs amid high prices and constrained feedstock availability.
Saudi Arabia, meanwhile, is cutting prices. The kingdom is expected to lower its official selling price for Arab Light crude to Asia in July by $3 to $8 per barrel from June levels, to a premium of $7.50 to $12.50 over Dubai and Oman benchmarks, according to a Reuters survey of industry sources. That would be the second consecutive major price cut, following a record-high premium of $19.50 in May. The reason: Chinese refiners are running at a loss and have slashed Saudi crude purchases to about 600,000 barrels per day by the end of June, down from 1.6 million barrels per day in February, The National reported.
