If Supply Drops But Demand Does Not, The Price Of Oil Will Soar

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I remember the first time the price of gasoline rose to more than $1.00 a gallon in the US. Most of us play a little game in our heads when we go to fill up. We know approximately how many gallons of gas we will pump, based on the level of the fuel gauge. My car had a twelve-gallon tank and I would normally fill up when it was about a quarter full. So 9 gallons times 90 cents meant I would pay about $8.10.

But when I went to the window to pay, I owed $10.80. I was shocked! The Earth had shifted on its axis. How could 9 gallons of gas cost that much? It made no sense. The rest of the day, I was in a state of shock as my tiny brain tried to make sense of the new reality. Something similar is happening in the world today. A decrease in the supply of oil, methane, and fertilizer from the OPEC cartel is driving up the price of everything. The whole world is suffering from sticker shock.

Economics Is Not Rocket Science

An economist would tell you that is inevitable. When supply goes down, prices go up, and vice versa. It’s not ideology or dogma. It’s reality. But how much supplies of those things will decrease as a direct result of some toady in the White House deciding it would be fun to show how powerful the US is by bombing a foreign country is a matter of some debate.

Kpler is a Texas-based global data and analytics firm that provides real-time tracking, forecasting, and intelligence tools for physical commodity and maritime markets. On May 13, 2026, it said “Cumulative Middle Eastern crude and condensate supply outages have continued to climb rapidly in recent weeks, currently hovering at 782 Mbbl as of 8 May, with outages expected to hit the 1,000 Mbbl mark later this month.”

Nations that used to export oil through the Strait of Hormuz are storing all the oil they can, stuffing it into empty tankers where possible, but storage capacity is at its limit. The next step may be shutting down production. Those of us who do not work in the oil industry have a simplistic model in our heads of the business. We think it is like the faucet on our kitchen sink. If we have to shut it off, we can just turn it back on whenever we want, right? Actually, it doesn’t work that way. Once production is stopped, it can take months to get it started again.

“While our base case still assumes a gradual reopening of the Strait of Hormuz by month-end, Middle Eastern supply outages have significantly altered the global crude balance compared to our expectations prior to the war. In fact, the global crude balance was hovering at large surpluses for March and April at the time,” Kpler said. What the basis is for its assertion that there will be a “gradual reopening” of the Strait in the next two weeks is unclear.

The MO for the alleged president is to threaten dire consequences and retribution, but Iran seems to understand that the best way to respond to a bully is to punch him in the nose. So far, its strategy has been far more effective than his.

The IEA Oil Market Report

The IEA has issued a revised Oil Market Report for May that suggests demand for oil will exceed supply through the end of this year. “More than ten weeks after the war in the Middle East began, mounting supply losses from the Strait of Hormuz are depleting global oil inventories at a record pace. Benchmark oil prices have posted wild swings in response to conflicting signals on whether the United States and Iran will soon reach a deal to end the conflict, with North Sea Dated plunging from a high of $144/bbl to below $100/bbl before rebounding again. At the time of writing, the two countries remained at loggerheads over an accord to reopen the Strait and end the war, with North Sea Dated around $110/bbl,” that report says.

The IEA warns the reduction in supply will lead to “an unprecedented supply shock.” It reports that “refiners have reduced runs and sharply scaled back crude imports.” The reduced supply is quickly spreading to product markets, it says. “End users are also reducing consumption…. The steepest losses are seen in the petrochemical sector where feedstock availability is becoming increasingly constrained. Aviation activity is also running well below normal levels, helping to ease some of the pressure on jet fuel prices, which nearly tripled after Middle Eastern exports were cut off. Higher prices, a deteriorating economic environment and demand-saving measures will further weigh on global oil consumption.

“While demand may swing back to growth towards the end of the year if a deal to end the war is agreed that allows flows through the Strait of Hormuz to gradually resume from 3Q26, as is assumed in this Report, supply will likely be slower to recover. As a result, the oil market remains in deficit until the final quarter of the year. With global oil inventories already drawing at a record clip, further price volatility appears likely ahead of the peak summer demand period.”

When Will The Strait Of Hormuz Reopen?

OilPrice.com reports that commodity analysts at JP Morgan are warning oil inventories could “approach operational stress levels,” meaning supply loss could become a lot less manageable than it is now. “Our conclusion is that one way or another the strait reopens in June,” JP Morgan’s Natasha Kaneva said, as an end to the war would be the only way the world avoids the shortage scenario.

If that does not happen, “The next phase of this shock may look less like a traditional crude spike and more like a refining and end-user fuel crisis,” she said, and added that only a ‘clear, credible announcement, ratified and confirmed by both sides’ would calm markets.

Aramco’s Amin Nasser said recently that traders may be overestimating the availability of oil in storage. “Not all of the barrels that are counted as being in storage are actually accessible,” he said. In fact, only a fraction of it is accessible. “The rest is locked up in pipeline fill, minimum tank levels, and other day-to-day operational constraints.” There are also limits on how much oil one can draw from storage on a daily basis. “In Europe and the US, the maximum you can pull out from there is 2mn barrels a day,” Nasser said.

Bomb, Bomb, Bomb. Bomb, Bomb Iran

Where does that leave us? Totally at the whim of a leader with the temperament of a reactive two year old. This is a self-induced problem with no apparent solution other than bombing Iran back to the Stone Age, an option the MAGA faithful fully support. They seem not to care that doing so would instantly turn the United States into a pariah nation.

Yesterday, Paul Krugman posted this scathing comment about our Dear Leader: “The global scene right now isn’t dominated by a conflict between a rising and a declining superpower, because the declining power is led by a man who has no idea what makes great powers great, is easily distracted by trivia, is focused on self-enrichment and self-aggrandizement, and fantasizes about himself as Jesus. If you want classical analogies, think of America right now as the Roman Empire under Caligula, although Caligula didn’t do anything like as much damage.”

Wow! Krugman nailed it. If you are watching your bills going up while your income shrinks, there is only one person to blame — the serial sexual predator and inveterate liar in the Offal Office. Things are likely to get worse — much worse — before they get better.

Just imagine how many wind turbines and solar panels the tens of billions already spent on the idiotic war on Iran could have bought. There is only one permanent solution to this unending fossil fuel madness — transition to renewable energy as quickly as possible. Continuing to do what we have always done is madness.