Forex▼ Bearish
Oil Markets Bought Time, Not Insurance
WTI crude sits between $80-85 after swinging from $70 to $90. Analysts say the buffers that stabilized supply are temporary, leaving narrower margins for any new shock.
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Oil prices have swung hard over the past two months. The net effect on global supply has been smaller than many analysts expected when the first tanker was hit in the Strait of Hormuz.
WTI crude fell from around $85 a barrel to below $70 after the U.S.-Iran peace deal in mid-June, as the conflict risk premium collapsed. By mid-July, attacks on shipping vessels in the Strait of Hormuz and the Red Sea pushed prices back above $90. At the time of writing, they sit between $80 and $85.
The two chokepoints together carry almost 30 million barrels per day of crude and refined products, more than a quarter of global oil consumption. Hormuz alone handles about 20 million bpd. The Bab el-Mandeb corridor, which connects the Red Sea to the Indian Ocean, carries another 8-9 million bpd. Historically, the Red Sea route acted as a pressure valve when Hormuz was blocked; Saudi Arabia could redirect crude westward. That valve works less well when both passages are under threat at the same time, analysts said.
The market has absorbed the disruption through rerouting, strategic reserve releases, inventory drawdowns, and weaker Chinese demand. The U.S. Strategic Petroleum Reserve now stands at roughly 310 million barrels, down from about 700 million before the 2022 release program and the lowest since 1983. OECD petroleum inventories remain below pre-pandemic norms. Global inventories have declined through 2026 as supply struggles to keep pace with demand.
Product markets are sending a similar warning. U.S. gasoline stocks are roughly 7% below their five-year average. Distillate inventories are about 10% below. The inflation risk from oil shocks is often felt most directly through refined products, especially diesel, where tight inventories and elevated crack spreads can keep pump and freight costs sticky even if crude prices ease, a research note published this week said.
Saudi Arabia redirected roughly 5-7 million bpd of crude flows through its East-West pipeline and Red Sea export system, helping keep supplies moving despite severe disruptions in Hormuz. Those alternatives become less effective when security concerns emerge across both corridors.