The past 40 days have been like a brief return to the early 1970s. Geopolitical tensions between Iran, Israel and the US erupted into a full-scale conflict that led to the closure of the strategic Strait of Hormuz, through which over 20% of the world's oil flows. As strategic reserves were depleted, a number of US allies across Europe and Asia experienced massive increases in fuel prices. Brent hit a daily peak of $112.47 on 20 March, with intraday prices almost reaching $120 at times. On 8 April, after much back-and-forth between the IRGC and Washington, a two-week ceasefire was finally announced. Crude prices immediately dropped by 10–16%, with Brent now trading between $90 and $96 a barrel. It would seem the immediate worst-case scenario has been averted, but the markets are still uncertain about longer-term stability.
Even though investors are less worried about the potential for a total closure of the Strait of Hormuz and the complete destruction of regional oil and gas infrastructure, many long-term risks still remain and will continue to influence prices for some time. These include, for example, fallout from infrastructure attacks that have already taken place, reducing capacity, the depletion of inventories and reserves that must now be refilled, the reduction in global demand as a result of the conflict, and, of course, the propensity of OPEC+ to adjust its output to influence prices, both in the short and longer term. In this piece, we'll look at all these factors and more as we attempt to plot oil's movements into summer and beyond.
Burning the candle at both ends
Oil prices have retreated from their crisis highs following the 8 April ceasefire, but the underlying supply picture remains tighter than headline moves suggest. While benchmark Brent briefly spiked above $110 per barrel at the height of the conflict, part of that risk premium has faded. However, not all that lost supply will return as quickly as it disappeared. Attacks on key export terminals, refining hubs and associated infrastructure across the region have reduced effective capacity, and in some cases, repairs are expected to take months rather than weeks. As a result, the market is no longer pricing a worst-case disruption, but it's still contending with a structurally constrained supply base. This is likely to mean that crude prices could remain elevated above pre-war baselines as capacity is gradually restored and other producing nations seek to maximise their profits.
At the same time, inventories have been quietly depleted both locally and in consumer nations across Europe and Asia. Strategic reserves were tapped and commercial stockpiles drawn down to smooth the shock of the Strait's closure. OECD inventories are now trending toward critical lows (~842 million barrels) after the IEA released 400 million barrels and Japan withdrew 50 days' worth of oil from its own strategic reserves. As the restocking process now begins, this will effectively create a second layer of demand that should support prices in the short term. For investors, this combination of ongoing supply impairment and the need to refill inventories would suggest that oil prices may find support at levels well above their pre-crisis range, even in the absence of any kind of further geopolitical escalation. This is particularly likely in the shorter term, given the supply-chain backlog that the closure of the world's single-biggest oil transit route will have caused.
Supply and demand
Set against this backdrop of tighter supply are forces that could cap further gains and ensure the market remains volatile. Although a ceasefire has been agreed, this is only temporary, and no enduring peace is yet visible on the horizon. This ongoing uncertainty, coupled with the toll of the fighting so far, has weighed heavily on global economic activity, with higher energy costs and the risk of future escalation dampening industrial output and consumption, particularly in more price-sensitive emerging markets. Early signs of demand softening are already becoming apparent, reinforcing the view that this war-induced price spike may be self-limiting unless supply deteriorates again.
This is where the influence of OPEC+ could prove decisive. The cartel still retains significant spare capacity, which it was gradually releasing into the market before the conflict ignited. In the continuation of a process beginning way back at the end of the pandemic, OPEC+ had already approved a production quota increase of around 206,000 barrels per day starting in May 2026. The producer group has been reported as weighing additional output increases at upcoming meetings in order to help bring prices under control more quickly. However, any significant production increases will surely be contingent on the secure operation of the Strait of Hormuz. Over the medium term, however, OPEC+ could decide to restrain supply to maximise revenue, but this would be at odds with the group's longer-term strategy of keeping prices below the point at which shale oil becomes viable ($60–70 per barrel). In this dynamic time, much will depend on whether a lasting resolution to the conflict can be found.