AI Summary
5 min readMartin Rantz, head of commodity research at Morgan Stanley, explains why oil markets have not fully priced in a historic supply shock of 13-14 million barrels per day—the largest on record—despite disruptions from the Strait of Hormuz closure. While commodity specialists emphasize the shock's scale, generalist investors expect it to prove short-lived due to its political origins. High pre-shock inventories from 2025 oversupply and floating storage have so far buffered the impact, preventing prices from revisiting 2022 highs.
Scale and Context of the Supply Shock
The supply loss stems from a sudden political decision affecting the Strait of Hormuz, catching markets somewhat prepared after a period of surplus through late 2024, all of 2025, and early 2026. Arabian Gulf producers like Saudi Arabia, UAE, and Kuwait released significant oil at sea beforehand. Data confirms this as the biggest shock in oil market history, undisputed among specialists. Yet prices have stayed muted as demand continues draining inventories—like oil flowing out the bottom of a tank while inflows halt at the top. Stocks hit records amid this disconnect, with energy overlooked.
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What you'll learn
- 1 (00:00) **Oil Market Resilience Amid Supply Shock**
- 2 (02:46) **Inventory Draws and Duration**
- 3 (05:52) **Venezuelan Production Offset?**
- 4 (07:04) **US Gas Prices and Pump Impact**
- 5 (08:02) **US Oil Market's Global Ties**
- 6 (09:21) **Gasoline and Refinery Dynamics**
+ Full timestamped outline available in the app
Show Notes
Despite the historical energy disruption from the Iran conflict, stocks are back to record highs. Our Global Head of Fixed Income Research Andrew Sheets and our Head of Commodity Research Martijn Rats discuss different views and fundamentals driving markets.
Read more insights from Morgan Stanley.
----- Transcript -----
Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.
Martijn Rats: I'm Martijn Rats, Head of Commodity Research at Morgan Stanley.
Andrew Sheets: Today: oil, oil inventories, and the price at the pump.
It's Wednesday, May 6th, at 2pm in London.
Martijn, it's great to talk to you. We remain in this very unique market where on the one hand, the energy market is severely disrupted. On the other hand, we're making new all-time highs in the stock market. And part of this debate is a creeping sense that maybe the energy market is just a lot more resilient than many people initially thought.
So, let's just jump right into it. As you look at the current state of the world, the state of things, how are you seeing the energy market at the moment?
Martijn Rats: There are definitely two views in the market. I would say commodity specialists, oil traders, people that trade oil and gas equities for a living, tend to focus on the size of the supply shock. And it is neither hyperbole nor disputed that the size of the supply shock is the largest in the history of the oil market. We have the statistical data to back that up. That is not a controversial statement.
But at the same time, the other view in the market, generally held by your generalist investors who invest across many markets. They tend to focus on the likelihood or possibility that this supply shock might also be uniquely short. It was there all of a sudden, from one day to the next, the strait was closed. It felt a bit man-made, so to say. It was an outcome of a political decision, and that can also be undecided. And so, this is – the to-ing and fro-ing in the market is; on the one hand, this shock is very, very large. But the other hand it may also be very, very short.
Now we went into this supply shock, arguably well-prepared. In the sense that during the course of like late 2024, all of 2025, and the very early part of 2026, we were telling a story of oversupply surplus. And on top of that, given the military buildup was going on in January and February, a lot of countries in the Arabian Gulf – Saudi Arabia, the UAE, Kuwait – visibly put out a lot of oil at sea.
So, in the oversupply of 2025, we put oil in storage in lots of places that we can't always see. But that seems very likely. Oil in the water was very, very high. So,
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