Global oil inventories are plummeting to multi-decade lows, exacerbated by Middle Eastern supply disruptions and the rapid depletion of strategic reserves. Escalating geopolitical tensions, particularly involving Iran, threaten further supply shocks. The world faces a potential oil crisis with diminished buffers and constrained transit routes, suggesting prolonged market vulnerability.

Markets may be underestimating the risk, with traders betting on a Hormuz reopening even as physical oil stocks approach critically low levels and tanker traffic remains disrupted.

NEW YORK — Oil stockpiles in the world's largest economies are headed toward the lowest levels since at least 2003 as inventories are drawn down at...