Crude oil markets have been thrown into fresh turmoil after a brief truce in the Middle East allowed tanker traffic to resume through the Strait of Hormuz, only for renewed military exchanges to send prices climbing again just as a supply glut appeared to be forming.
Prices had been sliding steadily through June, according to the International Energy Agency's latest oil market report, as the interim ceasefire between the United States and Iran allowed oil flows through the Strait to recover strongly.
North Sea Dated crude, a key global benchmark, fell by $31 a barrel over the month to around $68, its lowest level since January and even below where it stood before the conflict began. That slide reversed abruptly after fighting flared again on July 7 and 8, pushing the benchmark back up to roughly $77 a barrel.
The surge in crude shipments helped push global observed inventories higher for the first time since the war began, with oil held on water climbing by 117 million barrels, more than offsetting a 96 million barrel drawdown in onshore stocks, of which 44 million barrels came from government reserve releases.
While crude supply has recovered relatively quickly, refined product markets have not kept pace. Gulf exports of refined fuels and LPG remained at less than half their pre-war volumes in June, compared with crude flows running at nearly three-quarters of February levels, and 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, with gasoline cracks rising sharply even as earlier fears over jet fuel shortages eased.
Global oil demand bottomed out in May at 97.9 million barrels a day, down 5.3 million barrels a day year-on-year but is forecast to climb by more than 8 million barrels a 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 agency still expects overall demand to decline by 1 million barrels a day for 2026 as a whole before growing by 2 million barrels a 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, with a durable ceasefire seen as essential before oil markets can fully stabilize.
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