UBS: If the Strait of Hormuz remains blocked, global crude oil inventories will fall to historic lows by the end of April

UBS’s latest research warns that if the Strait of Hormuz blockade persists, global crude oil and refined product inventories could fall to historic lows by the end of April. Brent crude oil prices may then rise above $150 per barrel, with further upside risks.

There are no signs of easing in Iran-related conflicts this weekend. Last Friday night, the U.S. military launched strikes against Iran’s main oil export hub on Kharg Island, which handles about 90% of Iran’s crude exports. Subsequently, the Fujeirah terminal in the UAE was attacked by drones on Saturday, damaging two oil storage tanks and temporarily disrupting operations; it has resumed by Sunday. U.S. Energy Secretary Chris Wright stated that the conflict could continue for several more weeks.

According to Wind Information, UBS analyst Arend Kapteyn estimated in a report on the 16th that even with the combined use of Saudi pipelines (5 million barrels/day), UAE pipelines (500,000 barrels/day), ongoing Iranian exports (1.7 million barrels/day), and IEA strategic reserve releases (about 3.3 to 4 million barrels/day), these measures would only offset roughly half of the supply loss caused by the de facto blockade of the Strait of Hormuz, leaving a gap of about 10 million barrels/day. Based on current inventory consumption rates, global oil product inventories will fall into the lower third of their historical distribution range by the end of March and reach the lowest levels on record by the end of April.

For investors, low inventory levels mean oil prices will exhibit significant convexity—their sensitivity to supply shocks will be far above historical averages. UBS conservatively estimates that, if the situation in the Strait of Hormuz does not improve substantially before the end of March, Brent crude could rise to around $120 per barrel, with further increases beyond $150 in Q2; if demand destruction signals become clear, scenarios of $160 per barrel are also within its modeling framework.

Supply gap remains unfilled, about 10 million barrels/day still missing

Under normal conditions, the Strait of Hormuz handles approximately 20.5 million barrels/day of oil and gas flows. The substantial loss caused by a blockade is difficult to fully compensate with existing alternative routes and policy tools.

UBS has summarized the current available alternative supplies: Saudi Arabia can reroute via land pipelines delivering 5 million barrels/day; Fujeirah’s alternative pipeline in the UAE can supply 500,000 barrels/day; some Iranian exports continue at 1.7 million barrels/day; and IEA strategic reserves are expected to release about 3.3 to 4 million barrels/day. Even if all these measures are fully implemented, the total additional supply would only be about 1.05 million barrels/day, leaving a supply gap of roughly 10 million barrels/day that must be rapidly filled by drawing down global inventories.

It’s also worth noting that the Fujeirah terminal itself has been impacted by the conflict, raising concerns about operational reliability, and the actual supply capacity of the UAE reroute pipeline remains uncertain.

Strategic reserves are being released faster, but the window is limited

Another UBS analyst, Henri Patricot, published a report on the 16th stating that the IEA announced more details on the emergency oil reserve release plan on March 15, totaling 400 million barrels, with a flow rate approaching 4 million barrels/day. However, this buffer effect is limited and subject to significant time lag.

According to IEA disclosures, 72% of the release is crude oil, and 28% refined products. Asian member countries will bear about 25% of the total release, which can be implemented immediately; but logistics in the Americas and Europe will only be in place by late March. The U.S. plans to release 172 million barrels from strategic reserves at about 1.4 million barrels/day, and Japan at about 1.8 million barrels/day.

Even at the latest IEA estimate of about 4 million barrels/day, the strategic reserve release would only cover roughly 30% of the total loss from the Strait of Hormuz blockade, insufficient to fundamentally reverse inventory depletion trends.

Additionally, global inventories are unevenly distributed. Data shows that many low-income oil-consuming countries in Asia have inventories covering far fewer days of consumption than the global average. Once supply remains constrained, these countries will be the first to reach critical levels. UBS notes this will significantly increase the likelihood of panic buying—countries rushing to lock in supplies before their inventories run out, further pushing prices higher on the demand side.

Inventories depleting rapidly, falling into historic lows by end of March

Amid the ongoing supply gap of about 10 million barrels/day, global oil inventories are depleting at an accelerated pace. UBS’s historical data-based estimates suggest that, at current rates, global crude and product inventories will fall into the lower third of their historical distribution by the end of March, and possibly reach the lowest levels on record by the end of April.

In absolute terms, current global observed inventories (including OECD, non-OECD stocks, and floating in transit) total approximately 9,000 to 9,300 million barrels. UBS’s scenario models show that if the Strait remains restricted throughout March, inventories will accelerate toward their lowest historical levels.

OECD industrial inventories also show clear downward pressure. According to the IEA’s February 2026 monthly report, OECD inventories are already below the rolling five-year average, with pre-existing supply tightness prior to the conflict’s outbreak.

Price convexity under low inventories: $160 scenario is not extreme

There is a well-documented nonlinear relationship between oil prices and global inventories: when inventories fall into the historic low range, prices respond much more sharply to further supply reductions than at normal levels—this is the “price convexity” effect UBS emphasizes.

Based on UBS’s model, under a continued Strait blockade scenario, Brent crude prices are expected to follow this path: around $120 per barrel by the end of March, rising above $150 by the end of April. If demand destruction signals remain unclear at that point, a scenario of $160 per barrel is plausible and has been incorporated into UBS’s scenario range.

This insightful analysis is from Wind Information.

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