Brent crude futures advanced toward $92 on Wednesday, extending a four-session rally to trade at $91.52, up 0.55%, while West Texas Intermediate reached $85 after settling at $84.92 on Tuesday, a 0.49% gain. Front-month WTI futures fluctuated between $83.92 and $84.78 overnight before U.S. buying emerged.
The market’s recent trajectory reflects persistent volatility. Brent has climbed 2.57% over the past month and 36.92% over the past year, while WTI has gained 2.95% monthly and 37.47% annually. The Brent-WTI spread narrowed to $6.60, well below the March monthly average of $12 and down sharply from the $25 peak recorded on March 31.
The annual price path underscores the volatility. Brent opened 2026 at $61 per barrel, surged to $118 by the end of the first quarter—the largest quarterly increase on an inflation-adjusted basis in available data—and briefly touched nearly $128 on April 2. Prices then collapsed to $69 on July 2 following a U.S.-Iran memorandum of understanding, before recovering toward $92.
The immediate catalyst is the expiration of the 60-day U.S.-Iran memorandum on Monday, with no replacement agreement in place. President Trump stated Washington is not engaged in talks with Tehran and confirmed the naval blockade remains active, while posting a map on Truth Social depicting the Strait of Hormuz as U.S. territory. Iran has reiterated that the strait will remain closed until the U.S. meets six unspecified demands.
The Energy Information Administration’s weekly inventory report, due at 9:30 a.m. ET, is expected to show a 0.2 million barrel build, following last week’s 17.4 million barrel increase. Industry data released Tuesday evening indicated a 328,000 barrel decline in crude stocks.
Prompt differentials for both WTI and Brent have returned to backwardation, signaling physical tightness rather than positional trading.
Eight vessel attacks reported this month in the Strait of Hormuz—including incidents involving UAE- and Saudi-linked ships—highlight the disconnect between official claims of free navigation and operational reality. One vessel sustained engine-room damage and a crew casualty while exiting the strait, according to UK maritime authorities. Despite these risks, traffic remains limited regardless of diplomatic or military assertions.
The strait, which carries nearly 20% of global oil supply, remains a critical supply chokepoint. Iran has intensified hostilities over the past week, reinforcing the risk of a first-order supply disruption. Market participants have adapted by rerouting exports. Iraq has established new export mechanisms beginning in September, while Saudi Arabia and the UAE are offering crude cargoes sourced outside the Gulf. Two major Chinese shipping firms have halted tanker transits through Hormuz and Bab al-Mandeb, opting to load cargoes outside the region.
Middle Eastern producers have also developed covert routes to move oil through Hormuz despite the risks, reducing the headline risk premium. The insurance market remains the binding constraint. Tankers are not physically blocked, but elevated war-risk premiums and coverage cancellations have curbed traffic. Restoring flows would require underwriters to reprice risk, a process that typically lags diplomatic developments.
Full restoration of flows could take months once initiated, according to the analysis. It has not yet begun.
The supply disruption remains substantial. The International Energy Agency’s August Oil Market Report estimates global oil supply rose 2.4 million barrels per day to 101.5 million in July but remained 6.3 million barrels below year-ago levels. Gulf output shut-ins totaled 8.3 million barrels per day, while full-year 2026 supply is now forecast to fall by 4.3 million barrels per day to 102 million. Growth from the Americas of 1.4 million barrels per day partially offsets losses in the Middle East and Russia.
Global observed oil stocks declined by 69 million barrels in July as export disruptions from the Gulf and Caspian regions reduced volumes on water. Onshore inventories fell by 6 million barrels as emergency stock releases slowed, despite continued draws in Chinese crude stocks. Total observed inventories stand just below 7.9 billion barrels, down 410 million since the start of the war—an average draw of 2.7 million barrels per day.
The EIA’s August Short-Term Energy Outlook, released August 11, raised its estimate of Middle East shut-ins to reflect persistent Hormuz transit constraints through August. The agency estimates disruptions accounted for 5.5 million barrels per day of shut-ins in July, with most regional production expected to return to pre-conflict averages by early 2027. Ongoing disruptions of roughly 0.6 million barrels per day are projected to persist through the end of 2027.
U.S. production is partially offsetting the supply loss. Output is forecast at 13.6 million barrels per day in 2026, rising to 13.8 million in 2027—500,000 barrels higher than earlier estimates as higher prices incentivize additional drilling.
OPEC+ output fell by approximately 1.74 million barrels per day in April alone. The UAE announced its departure from OPEC effective May 1, 2026, removing a key coordination member at a critical juncture.
Demand destruction is balancing the market. The IEA now forecasts global oil demand to decline by 1.6 million barrels per day in 2026—a downgrade of 510,000 barrels per day from July—amid elevated fuel prices and ongoing Hormuz disruptions. The revision follows renewed hostilities in late July and stalled U.S.-Iran negotiations, which prompted the agency to project larger demand destruction than previously assumed.
The quarterly demand trajectory is pivotal. Annual contractions are projected to ease from 4.9 million barrels per day in the second quarter to 2.8 million in the third, before returning to growth in the fourth quarter. Global demand is expected to expand by 2.4 million barrels per day in 2027.
OPEC similarly reduced its 2026 global demand growth outlook to 1.17 million barrels per day from 1.38 million, citing the conflict’s impact on trade flows.
