A 900-million-barrel gap between Goldman Sachs and JPMorgan estimates of global oil inventories illustrates how uncertain the physical market has become, according to Nucleus Wealth chief investment officer Damien Klassen.

Goldman Sachs puts visible global inventories at roughly 7.7 billion barrels, including landed storage, Chinese domestic stocks and strategic petroleum reserves. JPMorgan's estimate lands closer to 6.8 billion barrels, with a narrower definition of what counts as usable supply.

What counts as usable inventory?

Klassen writes that headline inventory figures can mislead. Oil in a pipeline cannot be removed without disrupting the pipeline itself. Oil aboard ships is often already committed to specific voyages and cannot reach a refinery in the short term. Strategic reserves exist in volume but require time to release.

From his analysis, almost 900 million barrels sits in the difference between the two estimates — a gap that could decide whether the global economy muddles through or absorbs a genuine shortage.

Why diesel may matter more than crude

Distillate markets have tightened sharply. Diesel prices in the United States have hit record levels, with elevated prices elsewhere. The transmission to the wider economy runs through freight rates, agricultural costs and industrial operating expenses.

Trucks, ships, farm machinery and heavy industry all run primarily on distillate. Refined-product shortages can therefore produce inflationary damage even when crude supply looks adequate on paper.

What is happening in the Strait of Hormuz?

Reported Strait of Hormuz flows have ranged from 3-4 million barrels per day on the low end to roughly the pre-conflict level of 18 million bpd. Klassen points to an indicative recent range of 8-10 million bpd, with flows appearing to rise over several weeks.

The picture is complicated by vessels switching off transponders to reduce visibility, and by ship-to-ship transfers inside the region that allow producers to move crude beyond the Strait without the original vessel completing the transit. A handful of large tankers can carry more oil than a dozen smaller vessels, which means the simple count of ships crossing tells a misleading story. Satellite imagery, including draught readings to estimate load, fills some of the gap.

Pipeline damage adds another variable. Repairs done quickly limit the impact. Lines left offline remove an alternative route and make tanker disruptions more consequential. The status of those repairs is not publicly known.

Refined-product losses from Russian infrastructure

Ukraine has continued strikes on Russian refineries and oil infrastructure. Klassen puts the direct crude-oil impact at roughly 1 million bpd, with refined-product losses potentially running 2-2.5 million bpd. The larger figure reflects knock-on damage to diesel and other distillate output.

How wide is the supply gap?

Global consumption runs at 100-105 million barrels per day. Before the conflict, supply may have exceeded demand by 3-5 million bpd. Higher prices have already trimmed some consumption.

Klassen frames three scenarios:

• Favorable case: shortage of 3-4 million bpd
• Severe Middle East disruption: 8-10 million bpd removed
• Combined extreme disruption across the Middle East and Russia: up to 15 million bpd

Demand response is non-linear. A 10-20% price increase would probably remove another 5 million bpd of consumption relatively quickly, but, Klassen writes, "the adjustment becomes exponentially more painful from there." Each additional reduction requires a substantially larger price move.

Two divergent paths for crude

Path one — a prolonged physical shortage — keeps Middle Eastern infrastructure impaired, continues attacks on Russian energy assets, and gradually runs down stored barrels. Under that scenario, prices could need to reach $150-200 a barrel to force sufficient demand destruction.

Path two — a political settlement that reopens the Strait, restores damaged infrastructure and eases sanctions friction — creates the opposite problem: too much oil, potentially arriving into a world still seeking to reduce geopolitical exposure to hydrocarbons.

What should traders watch?

"Expect volatility in the run-up to the US elections," Klassen writes, with the political outcome setting the next directional move. Chinese buying patterns, Iranian leverage decisions and the trajectory of Russian refining damage remain the near-term swing factors for both crude and distillate markets.

From Klassen's perspective, the biggest mistake would be to become overly confident in either extreme. The physical market is considerably tighter than headline inventory numbers suggest, but the buffer is not zero.