The U.S. war with Iran -- and the economic war the latter waged in return -- was supposed to be an apocalyptic moment for the oil market. Instead, oil prices are on the cusp of falling back to their prewar levels.
Their stunning round trip, just 11 days after President Trump reached a 60-day deal to reopen the Strait of Hormuz, has disrupted widespread expectations that the global oil market's recovery would take months, at minimum.
A few weeks ago, energy experts predicted that a reopening of the Strait of Hormuz would be a protracted process that would involve navigating a literal minefield; that some Persian Gulf countries could take months to resume production; and that dwindling oil inventories around the globe would inevitably spur a surge in fuel prices.
Now, markets are retreating in spectacular fashion, baffling executives and analysts.
Brent crude traded as low as $72.06 a barrel on Thursday, briefly falling below the $72.48 mark, where it settled the day before the war began. Prices peaked at $118.35 in March. U.S. crude settled at $71.92 on Thursday, down 36% from its recent high and rapidly approaching $67.02, where it traded in late February.
Tankers loaded with crude are leaving the waterway in droves; gulf countries are racing to resume crude exports; and some of the largest buyers of crude on the planet are proceeding without using as much oil. Analysts at JPMorgan Chase said this week that global energy flows had shifted in ways it hadn't expected.
"The market has rebalanced through a meaningfully different mix of demand losses and inventory withdrawals than we initially assumed," they said.
The reprieve could be short-lived. Some oil analysts are warning that the sinking prices don't fully reflect how tight the market remains after months of draws on global oil inventories, which are now flirting with operational limits.
Although tankers are making it out of the strait, the voyage to unload crude at their destinations and back to pick up another load can take months. Plus, production in the gulf likely might not hit its prewar levels before this fall.
"The market might be a little bit overenthusiastic of how quickly the supply side, particularly inventories, are going to stabilize," said Bart Melek, global head of commodity strategy at TD Securities.
Here are some of the things to watch as the oil market readjusts.
Hormuz traffic
Tanker traffic through the strait has climbed swiftly since the U.S. and Iran struck an accord on June 14. A postwar record of 78 tankers sailed through the waterway on Wednesday, up from a previous high of 49, according to S&P Global. That represents 57% of prewar traffic levels.
Yet it couldn't be determined how long traffic can remain elevated. Much of the current influx moving through the region are outbound vessels that have been trapped for months. It could take weeks or months for other vessels -- many of which are floating near the U.S. Gulf Coast or carrying U.S. crude to destinations in Asia -- to reroute toward the Middle East and traverse the strait.
"I think it's going to be pretty tenuous," said Mark Lashier, chief executive of Phillips 66, at a conference this week, adding that some 90 million to 100 million barrels of oil can sail out of the strait after being stuck for some time. "Then the question is: Who will be brave enough to send ships back in? Will they be able to get insurance? How does that all play out?"
Demand for oil
Oil demand in China, the world's largest importer of crude, appears to have fallen faster than JPMorgan analysts anticipated, implying that its economy might be adapting to higher energy prices more efficiently than experience would indicate, they said.
"If the adjustment proves durable, the market would require significantly smaller inventory drawdowns going forward," they said.
Whether China picks up new purchases in the coming weeks will have a huge influence on the markets. Analysts said the country might not want to reduce its strategic reserves further.
The closure of the strait had trapped much of the oil and fuel that Saudi Arabia, the United Arab Emirates and Iraq produce, leaving countries in Asia and Europe scrambling for barrels. China dramatically cut its imports, as did Japan, South Korea and several European countries.
Much of that demand is expected to return as countries try to restock depleted reserves from which they drew hundreds of millions of barrels in the past few months.
Oil supplies
Over the past three weeks, roughly 2 million barrels of oil a day have come back on to the market, with Iran pumping out barrels faster than Saudi Arabia and the U.A.E., according to the research firm Rystad Energy. But it will likely take Iraq, Kuwait and other gulf countries that had to slash production until October to pump oil at full speed, analysts said.
These barrels of oil aren't immediately available to stocks around the world, which are still being depleted. For instance, at the oil-storage hub of Cushing, Okla., one of the world's largest tank farms, levels fell to 19 million barrels last week -- 1 million barrels below what analysts said is the threshold for ensuring smooth operations.
Melek of TD Securities said he expects countries to draw another 600 million barrels from their stocks by October. Oil executives have warned that once inventories drop below certain levels, prices could surge higher.
Companies' fortunes
The fossil-fuels industry has been on a wild ride this year. Shares of Exxon Mobil and Chevron set all-time highs in March and have since pulled back, tracking the drop in oil prices.
But the industry isn't yet in any danger of succumbing to another oil bust. Most oil-and-gas companies lock in higher prices through hedging. Exxon and Chevron are set to reap a cash windfall as trades made in the first quarter unwind.
Some oil executives and analysts said oil prices will bounce back.
National oil companies are aggressively marking down prices for crude as buyers move slowly back into the market, said Robert Yawger, an analyst at Mizuho. As headlines on Iran recede, traders will be forced to trade oil based on fundamental supply and demand again, he said.
"It's set up for a bullish ride here," Yawger said, adding that prices could swing back up to the $80 a barrel range in coming weeks. "By definition, it's oversold."
Write to Collin Eaton at collin.eaton@wsj.com and Benoît Morenne at benoit.morenne@wsj.com
(END) Dow Jones Newswires
June 25, 2026 17:08 ET (21:08 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments