Brent’s $100 ceiling faces test as China, Washington stockpiles lose grip

Three and a half months after the closure of the Strait of Hormuz stripped 13 million barrels a day from global supply, oil is still trading below $100. The durability of that ceiling has less to do with fundamentals and more to do with three emergency stopgaps that are, one by one, giving out.

China slashed crude imports to multi-year lows. The U.S. flooded export markets at a record pace. Developed economies released strategic petroleum reserves in coordinated waves. Together, they absorbed a supply shock that by rights should have sent prices toward the stratosphere.

Now the buffers are failing, and analysts say the market is perhaps a few weeks from an inflexion point.

“From an inventory perspective, we believe that the end of July could be an inflexion point for the market if there is no improvement in energy flows from the Persian Gulf,” Warren Patterson, head of commodities strategy at ING, wrote in a note this week. Without a diplomatic breakthrough, Brent crude could spike to $120 to $130 a barrel this summer—a level that would sharply intensify pressure on the Trump administration to seal a deal with Tehran.

“And failing a deal, one can’t rule out the possibility that we get to a point where energy-starved buyers are more willing to pay Iran tolls for safe passage through the Strait of Hormuz,” Patterson added.

ING’s base case holds that Hormuz flows remain largely constrained through the end of July, leaving the market in deficit across the third quarter, with Brent averaging $110 a barrel between July and September before easing in the fourth quarter as Middle Eastern exports gradually recover.

China, the world’s top crude importer, responded to the price shock by cutting intake sharply. Imports in May fell to their lowest since October 2017. Rather than pay elevated spot prices, Beijing has drawn from its enormous strategic stockpiles, trimmed refinery throughput, and waited out the disruption as domestic consumers increasingly substitute EVs for gasoline-powered transport.

But reserves are finite. When China eventually returns to active purchases—and it will—it arrives in a market with deteriorating inventory. The longer it waits, the more acute that reentry becomes.

American crude and fuel exports have run roughly 1.8 million barrels a day above year-ago levels since the crisis began, giving buyers in Europe and Asia an alternative to Persian Gulf supply. The problem: that surge isn’t coming from new production. It’s coming from U.S. stockpiles.

“These stronger exports are coming from inventory rather than additional supply growth,” Patterson said. “The clear upside risk for the market is if tightening in the U.S. market prompts any intervention from the government when it comes to exports.”

An export restriction remains politically sensitive. But the tighter domestic inventories get, the harder it becomes to rule out.

The final buffer is the most time-bound. U.S. strategic petroleum reserve releases are set to conclude by the end of July. When they do, market tightening accelerates—arriving precisely as peak summer demand kicks in.

For Washington, the arithmetic is growing uncomfortable: three buffers nearly spent, a strait that remains largely closed, and a demand peak approaching on a fixed calendar. Every week without a deal is a week in which the diplomatic cost of inaction rises alongside the risk of $130 oil—a price that would make any negotiation harder to walk away from, for everyone involved.