Crude oil markets experienced a sharp reversal in early July after a brief ceasefire in the Middle East collapsed, sending prices swinging by $9 per barrel in just two trading sessions. The volatility underscores the fragility of supply assumptions that had driven prices lower through June.
According to the International Energy Agency's latest oil market report, North Sea Dated crude had fallen by $31 per barrel over the course of June to approximately $68, its lowest level since January. That decline was fueled by the interim truce between the United States and Iran, which allowed tanker traffic to resume through the Strait of Hormuz. However, renewed military exchanges on July 7 and 8 pushed the benchmark back up to roughly $77, erasing most of the prior month's losses.
The brief reopening of the Strait had enabled a significant supply rebound. Global observed inventories rose for the first time since the conflict began, with oil held on water climbing by 117 million barrels. That more than offset a 96 million barrel drawdown in onshore stocks, of which 44 million barrels came from government reserve releases. The IEA noted that crude supply recovered relatively quickly, but refined product markets lagged behind.
Gulf exports of refined fuels and liquefied petroleum gas remained at less than half their pre-war volumes in June, compared with crude flows running at nearly three-quarters of February levels. Key export refineries in the region have yet to restart operations. Ukrainian strikes on Russian refining and export infrastructure have added further strain, disrupting both exports and domestic fuel supplies.
The mismatch between well-supplied crude markets and constrained product markets pushed refining margins to four-year highs by early July. Gasoline cracks rose sharply even as earlier fears over jet fuel shortages eased. The IEA warned that this imbalance could persist if refinery outages continue.
Global oil demand bottomed out in May at 97.9 million barrels per day, down 5.3 million barrels per day year-on-year. However, the agency forecasts demand will climb by more than 8 million barrels per day by October as peak summer travel and pent-up demand feed through, putting consumption above 2025 levels for the first time since February. Even so, the IEA still expects overall demand to decline by 1 million barrels per day for 2026 as a whole before growing by 2 million barrels per day in 2027, a slower two-year pace of expansion than historical norms.
The agency's forecast for the market to swing back into surplus later this year rests on the assumption that Strait of Hormuz traffic continues to normalize, allowing producers to restart fields and refiners to resume shipments. This week's renewed exchanges of fire in the Gulf underscore how fragile that assumption remains. The IEA stated that a durable ceasefire is essential before oil markets can fully stabilize.
For financial advisors monitoring portfolio exposure, the volatility highlights the interplay between geopolitical risk and energy-sector allocations. The Fed Minutes Reveal Internal Divisions on Rates; Middle East Tensions Complicate Outlook and the US-Iran Ceasefire Set for June 19 Signing; Strait of Hormuz Reopens After 4-Month Blockade provide additional context on the macro environment.
