Some analysts had previously forecast that crude oil prices could potentially climb to $150 or even $200 per barrel if a U.S.-Iran conflict effectively closed the critical Strait of Hormuz, a passageway for about 20% of global supply. However, Brent crude futures only reached a peak of $126 per barrel, and from the start of the conflict on February 28th to President Trump's pause on strikes against Iran on June 11th, the average price held around $100 per barrel. Even after the U.S.-Iran understanding broke down and hostilities resumed, Brent crude only rose to around $90 per barrel. Market observers point to five primary reasons why oil prices have "not gone crazy."
China, as the world's largest oil importer, unexpectedly acted as a stabilizer for prices. By June, China had reduced its crude oil imports to their lowest level in nearly a decade, restricted exports of refined products, and its petrochemical sector cut production.
The United States, as the world's largest oil producer, extracted more crude, reaching a record output of 13.93 million barrels per day by April. Additionally, as part of a 400 million-barrel release coordinated by the International Energy Agency (IEA), the U.S. tapped its Strategic Petroleum Reserve.
Frequent statements from U.S. President Trump regarding peace agreements and restoring shipping through the Strait of Hormuz repeatedly undermined upward momentum in the oil market.
Saudi Arabia, the largest oil exporter in the Persian Gulf, increased shipments from its Yanbu port on the Red Sea coast, helping to compensate for reduced supply via the Strait of Hormuz.
Finally, traders noted that physical oil supplies are currently ample, limiting the price response to the latest escalation in the conflict.
On Monday, crude oil futures closed higher in volatile trading, driven by the escalation in U.S.-Iran tensions and statements from the Iran-backed Houthi group about imposing a ban on maritime traffic from Saudi Arabia. However, reports indicated that mediators were proposing a 10-day ceasefire and a resumption of peace talks.
Rystad Energy noted in a report that the retreat in oil prices from overnight highs reflects optimism about diplomatic efforts, rather than any substantial improvement in oil fundamentals—the Strait of Hormuz is nearly at a standstill, and the Houthis are threatening Saudi shipping via the Red Sea.
Jorge Leon, Head of Geopolitical Analysis at Rystad, wrote: "The risk of a sharp rebound in oil prices is very high if a ceasefire is not achieved, the Strait of Hormuz remains largely closed, and Houthi threats to Red Sea shipping intensify." He added that Houthi threats put roughly 2.5 million barrels per day of Saudi oil at risk.
However, analysts at Kpler suggested that a record 135 million barrels of crude oil in transit at sea could cap the next potential price surge.
The front-month Nymex crude contract for August delivery rose 0.9% to settle at $83.23 per barrel. The front-month Brent crude contract for September delivery gained 1.3% to settle at $89.22 per barrel. Both reached their highest settlement prices since June 12th and June 11th, respectively.
U.S. natural gas turned lower as robust LNG exports, strong production, and ample leftover inventories continued to offset summer cooling demand. The front-month Nymex August contract fell 1.7% to settle at $2.860 per million British thermal units (MMBtu).
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