US Shale Struggles to Expand Production as Physical Crude Gap Exceeds Paper Data: How Much Longer Will High Oil Prices Last?

On April 23 local time, Trump stated on social media that he has gained full control of the Strait of Hormuz and that no vessels will be allowed to pass without U.S. approval until an agreement is reached between the U.S. and Iran. Meanwhile, Iran continues to intercept cargo ships in the strait, with experts noting that the waterway remains firmly under Iranian control.

Previously, Iran officially declined to attend the second round of negotiations originally scheduled for the 22nd. In response, Trump announced his agreement to extend the U.S.-Iran ceasefire until Iran submits its proposal and completes relevant consultations.

While Trump claims a deal can be reached quickly, industry insiders view this as overly optimistic. Robert Malley, the chief Iran negotiator during the Obama and Biden administrations, believes that most concessions the U.S. demands from Iran are concrete and irreversible—such as surrendering highly enriched uranium or diluting and downgrading it—whereas U.S. concessions are largely nominal and reversible, leading to a more pessimistic outlook for the negotiations.

Karim Sadjadpour, a senior fellow at the Carnegie Endowment for International Peace, stated that given the depth of mutual distrust and the sensitivity of the negotiation topics, it is impossible for such a major agreement to be reached within a few weeks; such processes typically take months or even years.

According to statements from both the U.S. and Iran, the Strait of Hormuz will not be opened unless an agreement is reached.

Previously, the Trump administration has explicitly pressured the U.S. shale oil industry in hopes of driving down gasoline prices ahead of the year-end midterm elections. However, U.S. oil and gas rig counts have yet to show significant growth, and the Dallas Fed’s latest quarterly survey reveals that among more than 100 oil and gas executives, 43% of respondents expect daily production growth in 2026 to not exceed 250,000 barrels. This illustrates the tension between executive mandates and business decisions.

Furthermore, 32% of the surveyed executives expect daily production growth in 2027 to range between 250,000 and 500,000 barrels. Some executives noted that the market turmoil has made forecasting energy industry trends extremely difficult, while others believe that the current divergence between paper and physical prices in the crude oil market is hindering operators' decision-making. Dan Pickering, founder of financial services firm Pickering Energy Partners, stated that although the U.S.-Iran war is tightening market supply for 2027 and 2028, most companies are adopting a wait-and-see approach for their 2026 budgets.

JPMorgan commodities strategist Natasha Kaneva warned in her latest research report that while April's supply disruption data has been interpreted as an accelerating contraction in crude oil demand, the underlying logic is exactly the opposite: the apparent decline in demand reflects a supply crunch on paper. In other words, buyers are not voluntarily pulling back; instead, physical stockouts are directly suppressing purchasing behavior.

This anomalous finding suggests that crude oil shortages to date have been primarily borne by vulnerable markets in the Middle East, Asia, and Africa, meaning the price pain for Western consumers has yet to truly begin. According to JPMorgan data, these markets accounted for 87% of the total reduction. Kaneva warns that even after accounting for aggressive inventory drawdowns, a supply-demand gap of approximately 2 million barrels per day (bpd) remains. Consequently, it is only a matter of time before the U.S. and European markets are impacted, leading to a sharp spike in oil prices and an eventual forced inventory clearing.

According to JPMorgan data, the scale of oil supply disruptions resulting from the closure of the Strait of Hormuz expanded from 9.1 million bpd in March to 13.7 million bpd in April. Spare capacity in Saudi Arabia and the UAE cannot be effectively brought online, and U.S. shale output is insufficient to offset the shortfall. U.S. Energy Information Administration (EIA) data shows that as of April 17, Brent crude spot prices reached $114.43, having touched $141.37 per barrel in early April—the highest level since 2008 and significantly above the $85.28 seen in early March.

The EIA expects Brent crude prices to continue climbing, peaking at approximately $115 per barrel this summer; however, this forecast assumes the conflict does not persist beyond April. Meanwhile, Citi projects that if the disruption in the Strait of Hormuz lasts for another eight to nine weeks, Brent crude prices will hit $130.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.