The United States is facing an oil price shock that is more complex and constrained by fewer policy tools than the 2022 energy crisis.
According to the Financial Times, Amos Hochstein, former senior White House energy advisor, warned that upward pressure on oil prices is far from over and will push long-term U.S. Treasury yields higher through both inflationary and fiscal channels. On one hand, physical supply disruptions caused by blocked transit through the Strait of Hormuz are unprecedented in scale and cannot be restored in the short term; on the other, a structural 'refining bottleneck' means that even if crude oil supplies recover, refineries cannot quickly convert them into gasoline.
Meanwhile, the two key tools used to address the 2022 oil price crisis are now largely exhausted: the Strategic Petroleum Reserve (SPR) has fallen to approximately 374 million barrels, leaving limited room for further releases; and shale oil production capacity has reached its ceiling, with no near-term ability to ramp up output quickly.
Hochstein expects that the May rise in oil prices will feed through to core CPI in about two months, implying that inflation data for July and August will show a marked increase, thereby constraining the Federal Reserve’s room to cut interest rates and keeping policy rates elevated.
Dual crises converge, creating an unprecedented supply gap
This oil price shock stems from two mutually reinforcing crisis chains.
First, physical supply disruption. The closure of the Strait of Hormuz has severed over 12 million barrels per day of global oil supply, which the International Energy Agency (IEA) has characterized as the most severe global energy security challenge in history.
Second, a structural refining bottleneck. Jet fuel crack spreads have hit a record high of $80 per barrel—far exceeding their 2022 peak—prompting refiners to shift significant capacity away from gasoline toward jet fuel. Consequently, despite running at full capacity, refineries are producing approximately 340,000 fewer barrels per day of gasoline compared to a year ago.
Data from the U.S. Energy Information Administration (EIA) show that U.S. gasoline inventories have been drawing down by roughly 4 million barrels per week recently, widening the gap with the five-year average to nearly 11 million barrels. The EIA’s historical record, dating back to 1990, indicates that the lowest inventory level on record could be reached as early as mid-to-late June.
The policy toolkit is nearly depleted, drastically narrowing the scope for action
The policy tools that effectively curbed oil prices in 2022 have largely become ineffective or have already been exhausted.
Regarding the Strategic Petroleum Reserve (SPR), as part of the International Energy Agency’s (IEA) coordinated response, the United States has committed to releasing 172 million barrels and has already released approximately 80 million barrels, reducing its remaining reserves to about 374 million barrels. More critically, because refinery capacity has shifted toward aviation fuel production, additional crude releases can no longer be converted into gasoline as efficiently as they were in 2022—diminishing both reserve levels and the effectiveness of this policy tool.
On the production side, there is also limited room for further output increases. U.S. crude oil and petroleum product exports hit a record high of 12.9 million barrels per day in late April, and daily petroleum product exports reached a new peak of 8.2 million barrels in May. Hochstein noted that this lever has already been fully extended, leaving no room for additional supply growth.
Inflationary transmission lags; bond markets have already reacted
The macroeconomic impact of the energy price shock is gradually becoming evident, and the worst is yet to come.
Hochstein pointed out that last week’s inflation data already showed that the magnitude and persistence of consumer energy price increases exceeded the Federal Reserve’s expectations, but this does not yet reflect future developments. The pass-through of energy prices into core CPI typically lags by several weeks, meaning the pressure from May’s oil prices will be prominently reflected in July and August inflation readings, thereby imposing new constraints on the Federal Reserve’s monetary policy path.
Bond markets have already responded accordingly. The yield on 30-year U.S. Treasuries has risen to its highest level since the financial crisis, with the 10-year Treasury yield also climbing in tandem. This will drive up mortgage costs, corporate borrowing rates, and federal debt interest expenses, exerting broader transmission pressures on the real economy.
Editor/Stephen