Oil prices aren't yet near the level economists had said would put the global economy in jeopardy of a recession
Brent, the global benchmark for crude oil, earlier this week topped a two-month high above $100.
Global oil prices topped $100 a barrel this week, bringing crude futures back to a two-month high.
Their share surge erased all of the relief seen since the U.S. and Iran agreed to a ceasefire and a "memorandum of understanding" in June, which Secretary of State Marco Rubio recently said was no longer alive.
Yet oil prices back near $100 a barrel still aren't near $138 - the level that economists in March said would put the global economy in jeopardy of recession if sustained for three weeks. The dynamic also hardly feels reflective of the historic oil supply shortfall of 2026, which the Federal Reserve recently described as twice as large as the disruption from the 1973 oil crisis.
Brent crude prices( BRN00) eased back to about $96 a barrel on Friday, but still held a weekly gain of roughly 10%. The September Brent contract (BRNU26) settled at $100.69 a barrel Thursday, the highest finish since May 22. Those are well above levels from earlier this year.
The "volatility and unpredictability" of crude's moves has may traders opting to stay away from the oil market right now, said Jeffrey Baird, founder and portfolio manager of Merritt Point Partners. "Several months of whipsawing headlines and extreme market reactions take a toll on the psyche."
Still, at around $100 a barrel, Brent surprisingly was just $13 above J.P. Morgan's estimated fair value for July, which it pegged at $87, according to strategists at the investment bank led by Natasha Kaneva. That implies the market has been only pricing in "a modest geopolitical premium," the J.P. Morgan team said Thursday. A risk premium is the extra price in a barrel of oil intended to help hedge against potential future supply disruptions.
With global reserves running low - and fuel supply pressures beyond the Iran war - oil traders could be in jeopardy of underpricing the ongoing energy shock.
Experts can now see how emergency reserves and a pullback in crude demand from China helped cushion the blow of an estimated 11.1 million barrels of lost supply since the start of the Iran war. Crude futures hit a record high of $147 a barrel after Russia's invasion of Ukraine in 2022.
But global supply buffers in 2026 have been worn down.
Global crude inventories fell to nearly 3.45 billion barrels in June 2026, from just over 3.7 billion barrels in March.
Goldman Sachs analysts warned that oil could still shoot back up to $120 a barrel if the Persian Gulf supply disruptions persist. If the world's inventory buffers were depleted, $120 is a price that could trigger enough demand destruction to put global supply and demand back in balance, Merritt Point's Baird said.
Few commodity analysts expected the Iran war to last this long, and some were surprised by the use of the Strait of Hormuz as a bargaining chip. But China's throttling back of oil imports and its use of hidden reserves to calm global crude prices were also surprises.
Through it all, the oil market found ways to offset losses to supplies and avoid even bigger price spikes. Now, the key is preparing for what could happen next.
"Our view, at a high level, is that we are in a crisis," said Merritt Point's Baird. "One that we have prepared for with very large inventory buffers, but the clock is ticking, and the challenges introduced this week with the potential disruption of Bab el-Mandeb just pull that much harder on the finite buffer."
Furthermore, crude disruptions aren't only about the Iran war, which is about to enter its sixth month. The wheels were set in motion for the largest-ever oil supply shock back in 2022 with the Russia-Ukraine war, Baird said. It's now only worsened with the threat to Saudi crude exports and maritime traffic in the Bab el-Mandeb Strait.
Taken together, this is the "largest supply-side shock the oil market has ever seen," Baird noted.
However, traders keep coming back to the idea that the Iran war "can't continue for a long time" because of the supply disaster it would unleash. That helps explain why oil futures suggest Brent crude will fall back toward $85 later this year.
The Trump administration has shown sensitivity to climbing oil prices, so every significant gain seems to increase the odds of the U.S. "walking back from escalation, or actively seeking de-escalation," said Baird.
Brent oil swung to a peak settlement above $118 peak in late March, up from lows under $60 early this year. Prices then plunged toward $70 earlier this month, before jumping back to $100 at the highs this week.
Ultimately, Wall Street oil forecasts will be right or wrong. But if the Iran war is still disrupting crude supplies this fall, the focus will be on U.S. gas prices at the pump, and how American voters feel about that cost ahead of the November midterm elections.
"The closer the midterm elections loom, the more we would expect the White House's Iran strategy to be swayed by political considerations," said Pavel Molchanov, investment-strategy analyst at Raymond James.
That implies more unpredictable news and oil-market volatility ahead.
-Myra P. Saefong
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(END) Dow Jones Newswires
July 24, 2026 15:31 ET (19:31 GMT)
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