Global oil markets

Global oil prices
Global oil markets are in a period of heightened volatility and uncertainty due to the de facto closure of the Strait of Hormuz, a major world oil transit chokepoint through which nearly 20% of global oil supply flows. The strait has been effectively closed to shipping traffic since military action began on February 28. The Brent crude oil spot price averaged $103 per barrel (b) in March, $32/b higher than the average in February, and daily Brent crude oil prices reached almost $128/b on April 2. The closure of the strait has dramatically reduced the availability of oil supplies to global markets and has had cascading effects across oil supply chains.

Prior to the conflict, our assessment was the global oil market was oversupplied and global oil inventories were building quickly, which was reflected in steadily falling oil prices over the previous year. We expected this trend to continue over the next two years, as strong growth in production from both non-OPEC+ producers and increased production targets from OPEC+ countries outpaced growth in global oil demand. However, the conflict in Iran has quickly shifted market dynamics, as producers in the region have been forced to shut in significant volumes of oil production, leading to near-term tightness in the market.

Previously, we assumed there would be a one-month disruption to oil flows and a resulting shut-in of oil production of about 5.5 million b/d, peaking in March. We expected the well-supplied market at the onset of the conflict would keep oil prices from exceeding $100/b on a monthly average basis if the conflict was resolved quickly. However, as the conflict and the closure of the Strait of Hormuz have persisted beyond our initial assumptions, we note that global oil inventories have drawn down sharply and shut-in oil production volumes have increased, raising our oil price forecast for the coming months. In addition, we expect that disruptions will continue through late 2026, putting upward pressure on prices over that period. Further, escalating attacks on energy infrastructure around the region and uncertainty about the ultimate duration of the conflict and the effective closure of the Strait of Hormuz lead us to assess that oil prices will reflect a larger risk premium throughout the forecast. Once flows through the Strait of Hormuz resume, we assume it will take time to resolve the backlog and disruption to oil tanker routes and trade flows and that the potential for future disruptions will remain at risk and create a premium in the oil price.

We now expect that Brent crude oil prices will increase from an average of $81/b in 1Q26 to a peak of $115/b in 2Q26 before gradually falling to an average of $88/b in 4Q26. We base this on the assumption that the conflict does not persist past April and that traffic through the Strait of Hormuz gradually resumes but does not return to pre-conflict levels until late 2026. Shut-in oil production gradually returns as flows through the strait resume and oil trade flows adjust. Given this relatively long adjustment period after flows through the strait resume, we expect oil prices will remain elevated, with Brent crude oil prices averaging $76/b in 2027, about $23/b higher than in our February STEO forecast.

Disrupted crude oil production volumes in the Middle East have increased significantly since our last forecast. We assess that production shut-ins averaged 7.5 million barrels per day (b/d) in March, and we expect they will increase to a peak of 9.1 million b/d in April before gradually falling over the coming months. These disruptions imply a global inventory draw of 5.1 million b/d in 2Q26. Our forecast includes the U.S. Strategic Petroleum Reserve release announced on March 11, and the collective release of strategic stocks announced by the International Energy Agency.

We have also revised our assumptions for global oil demand, based on reports of government initiatives to reduce fuel use, fuel shortages, and the curtailing of refined oil product exports. We assume reductions in demand occur primarily in Asia, which is more reliant on crude oil supplies from the Middle East. As a result, we now assume that global oil demand growth will average 0.6 million b/d in 2026, down from an average of 1.2 million b/d in last month’s STEO. We assume oil demand will rebound next year once supply flows return later in 2026, with oil demand growing by 1.6 million b/d in 2027 to 106.2 million b/d.