We are growing increasingly wary of the oil inventory drawdown over the past few months and the consequences if market participants suddenly decide that oil prices should be much higher even if the US-Iran conflict ends. To recap, peak market stresses occurred in late March and this is represented by the significant physical premium for crude. Since then, this premium has eroded to low single digits, dissipating market stresses in the process. Over the past few weeks, market participants were also increasingly optimistic that a deal between US and Iran can be reached, allowing the Strait of Hormuz to reopen. Accordingly, investors brought oil prices and Treasury yields lower as immediate term inflation concerns ease. 
drawdown in US all crude inventories is worrying. Much of this is driven by a drop in Strategic Petroleum Reserves, which have probably cushioned a lot of the supply crunch from the Middle East. Cushing inventories are also down to depressed levels. While the historical relationship between the inventory drawdown and higher oil prices seem to be dampened through the current conflict, we are concerned that this phenomenon is only temporary. Effectively, this becomes a matter of timing – when crude from the Middle East would flow again versus how low inventories can get – before a spike in crude prices ensue.
In the best case scenario where a meaningful amount of energy traffic resumes in the coming weeks, we think that the rebuild of inventories across many countries will mean that oil prices will be supported for some time. Oil prices may be too complacent and by extension, inflation pressures. We think that US / global yields are likely to stay supported even if a US-Iran finally gets inked. 
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