The largest oil supply shock since decades is now in its fourth month. There's no end in sight, as neither the U.S. or Iran appear willing to compromise. Yet the market remains surprising calm. This disconnect is a reflection of an uncomfortable truth: The biggest drivers in today's energy markets are a number of unknowns.

Brent crude oil is still well below the levels of a few months ago and comfortably within the range seen in the last two decades.

The disruptions are equivalent to 13% of the global oil supply, even though the Strait of Hormuz has been largely closed for over a year.

The market's positive mood is largely due to the expectation that the Gulf conditions could suddenly change. Prices have been cooled by President Donald Trump's repeated claims in recent weeks about a possible deal with Iran.

There is still little sign that Washington and Tehran have made any progress towards a lasting agreement. Both sides continue to hit targets in the region.

Even if the formal reopening occurred in the next few days - which is not the most likely scenario - it would not immediately translate into a complete recovery of flow. Geopolitics and risk assessments are both important factors in shipping. The Gulf will remain a risky place for tanker operators, traders, and insurers, who are wary of reentering it in case hostilities erupt again.

There are signs that more cargoes are leaving the Gulf through stealth channels in the last few weeks. However, this is a short-term solution being used by desperate operators and not a strategy for long-term success.

This opacity also speaks to a larger problem. Most oil traders operate in the dark regarding supply and demand. This increases the risk of unpleasant surprises if their assumptions are incorrect. HOW LONG WILL STOCKS LAST? First, it is not known how long global stocks can last. Since the outbreak of conflict on February 28, governments and companies have used commercial stocks and strategic reserve at an unprecedented rate.

According to the U.S. Energy Information Administration, global crude oil and fuel inventories fell by 5.27 million barrels a day in March. This increased to 8.62 millions bpd during April, and is likely to reach 9 million bpd or more in May. The drawdown could increase to 11 million barrels per day in June, as the seasonal demand rises ahead of summer in the Northern Hemisphere.

This is an extraordinary number - it's like reducing Saudi Arabia's production before the war every day. The United States is a good example. The United States is a stark example.

Cushing, Oklahoma, a delivery point for West Texas Intermediate Futures, has seen its stocks drop to the lowest level since January. If the current average rate of draws continues, inventories may soon drop below 20 million barrels. This is widely considered the minimum threshold for the hub to function smoothly.

Storage systems are not infallible, even though the market has shown remarkable adaptability over the past few months. Prices are expected to rise as the "tank bottoms", or levels of scarcity, approach. THE CHINESE ENIGMA

China is another key unknown. China, the world's second largest oil consumer, has reduced its seaborne crude exports as a result of higher prices. Imports fell in May to 6,36 million bpd - their lowest level in almost a decade.

This decline has been a relief for other importers, as it has lowered the competition to secure scarce cargoes. It has, however, introduced a new level of uncertainty.

China may decide to return to the market at any time.

China doesn't publish comprehensive or timely consumption data. This leaves the market in the dark as to how much the demand has been affected.

Beijing could have started to use its massive, but unidentified strategic reserves to compensate for lower imports.

If this is the case, then global supply may be tightening even more than what traders are currently estimating. If not, the drop in imports may signal a sharper-than-expected slowdown in demand.

This lack of clarity about a key driver of global supply and demand balance at such a critical time is worrying - it could lead to some people being on the wrong end of a trade. The invisible balancing force

The problem of measuring China is a larger one: supply and demand are inherently more difficult to measure.

Although the industry has developed "increasingly complex tools" to track crude production and refinery activity, and tanker movement - often in real-time - the consumption remains fragmented among billions of users. It is reported often with significant delays. In some countries, like China, the consumption is not reported.

Estimating the amount of destruction in demand caused by the current shock to supply has therefore become a 'exercise in inference.

The mechanism in theory is simple: tightening of supply leads to a decrease in inventories. Higher prices then follow and the demand is slowly destroyed. In reality, the process is a mess, unbalanced and hard to monitor in real-time.

Last month, the International Energy Agency (IEA) revised its outlook for global demand dramatically. It forecasted that it would contract by 420,000 barrels per day in 2026. This is a dramatic change from pre-war expectations of growth of 1.3million barrels per day. The consumption is expected to drop by 2.45 millions bpd just in the second quarter.

Some analysts and trading firms are more bearish. They estimate that the demand could have decreased by up to?5million bpd in may.

The longer the disruption of the Hormuz continues, the greater the impact on fuel demand and economic activity.

Oil market appears to be remarkably relaxed today, despite a 'prolonged and unprecedented disruption.

It could be that people are tired after months of volatility. But it may also reflect how little everyone knows about the real state of the oil markets, including experts. And how much of pricing is based upon sentiment and expectations.

This is a very precarious basis.

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(source: Reuters)