Oil gap widens: 13.7 million bpd supply loss, 7.1 million bpd inventory draw

The scale of the disruption is exposing deep structural stress across the oil system, where multiple balancing mechanisms are failing simultaneously, pushing markets into a phase of forced and disorderly adjustment.

According to a JPMorgan analysis, “the disruption to global supply totaled 9.1 mbd in March and widened to 13.7 mbd in April. Yet the first balancing lever — spare capacity — failed to engage,” effectively removing the industry’s primary shock absorber.

Spare capacity is largely concentrated in Saudi Arabia and UAE

Spare capacity, largely concentrated in Saudi Arabia and the UAE, has been cut off from global markets, leaving limited room for immediate supply response. Even in the US, output increases are expected to be gradual, with only 0.3–0.7 mbd likely over three to six months, and larger gains taking longer to materialise.

With supply flexibility constrained, the burden of adjustment has shifted sharply to inventories. “With spare capacity constrained, the second lever — inventories — was activated almost immediately,” the report said, adding that “observable commercial and strategic inventories drew by 4.0 mbd in March and an extraordinary 7.1 mbd in April.”

However, even these aggressive drawdowns have not been sufficient to restore balance. The market continues to face a structural shortfall, with the report noting that “the market would still need to clear an additional 2 mbd through lower demand or through even larger inventory draws.”

The adjustment is increasingly visible on the demand side. Global oil consumption declined by 2.8 mbd in March and is tracking a sharper 4.3 mbd fall in April, levels that rival downturns seen during major economic crises.

Importantly, the report clarifies that the nature of this decline is atypical. “This suggests that much of the decline is not traditional, price-driven ‘demand destruction’ but rather forced demand loss caused by missing supply,” indicating that physical shortages are constraining consumption across markets.

The regional distribution of the shock highlights Asia and the Middle East as the epicentre, together accounting for 87% of the total demand contraction in April, reflecting their dependence on Gulf energy flows.

Sectorally, the disruption is first hitting feedstock-intensive industries. The report notes that shortages of LPG, ethane and naphtha from the Gulf have forced petrochemical units to cut operating rates or shut down, while aviation demand is also weakening amid fuel constraints.

In India, the impact is already visible in consumption patterns. “LPG is also a key cooking fuel in India, and the latest official data show that March LPG consumption fell 13% YoY,” reflecting the early transmission of global supply stress into domestic demand.

The report underscores that commodity markets are ultimately forced into equilibrium. “If production falls short of desired demand, the gap can’t persist… as inventories tighten, prices rise to ration consumption,” it said, highlighting the inevitability of price-led adjustment.

With spare capacity constrained, inventories depleting at record pace and demand already under pressure, global oil markets are entering a phase of forced rebalancing, where higher prices, deeper demand compression and sustained volatility are likely to define the near-term outlook.