Yes, front-month prices surged in March-April but prices for the later months showed only modest increases from pre-war levels. Chart 1 shows a snapshot of Brent crude futures price curves over the last few months. Critically, the entire futures curve collapsed downwards in May and further in June. The oil futures market is in effect telling us that the current disruption is a logistics issue, it will not last and, importantly, there is no oil shortage.
In the spot market, crude oil prices did rise, averaging US$103 per barrel in March and US$117 per barrel in April, but then gave up much of those gains soon after — even as the war and oil blockade continued.
And the oil market has been proven to be largely right — Brent crude was trading around US$77 per barrel at the point of writing, not materially higher from around US$60 per barrel at the start of the year.
Why did oil prices not spike higher in the face of one of the most significant supply disruptions in recent memory — and all those ominous analyst warnings?
World was awash in oil
For one, the world entered 2026 with the highest inventory levels since the Covid-19 pandemic (see the red line in Chart 2). Global inventories had been climbing steadily higher through 2025 (orange line), with supply outstripping demand by 2.45 million barrels per day (mbpd) by 4Q2025. This was due, in large part, to production increases in the US and non-Opec nations. Opec+ too had reversed its previous decision to support prices by capping output, adding back 1.4 mbpd to supply.
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When the war started, attention focused almost exclusively on supply losses. However, supply disruption represented only half of the story.
Supply loss was accompanied by demand drop
The loss of supply from the Middle East was accompanied by a simultaneous drop in demand as prices rose, the result of a confluence of factors. Petrochemical manufacturers were among the first industries affected. Factories rely heavily on Gulf supply chains for oil-based ingredients like naphtha, liquefied petroleum gas (LPG) and ethane to manufacture plastics and fertilisers. When the flow of supply was cut off, manufacturers slashed operating rates. Demand from the aviation sector also contracted, with flight disruptions in key hubs like Dubai, Doha and Abu Dhabi.
Critically, China’s crude imports fell sharply as prices rose, from an average of 11.9 mbpd in 1Q2026 to below 8 mbpd in May — without having any obvious negative impact on its economy. The nation was propping up global demand in 2025, stockpiling a reported 1.1 mbpd, on average, to strategic reserves on cheap and falling oil prices. Brent crude fell to US$60 per barrel under pressure from persistent excess supply.
Chinese refineries cut some 2 mbpd throughput as margins got squeezed, drawing instead on commercial stockpile. China also leads the world in transportation electrification (electric vehicles) and clean energy (solar, wind, hydro and nuclear) — part of its broad energy security policy — and is a big producer of domestic coal, all of which now gives it optionality to shift away from rising oil prices. Some reports suggest the nation could flex up to 2 mbpd of demand.
Plus, the International Energy Agency (IEA) coordinated the release of a record 400 million barrels of oil from members’ emergency reserves, starting March — replacing part of the supply loss and keeping oil prices in check. Other oil producers — for instance, the US, Brazil and Venezuela — stepped up their output while Saudi Arabia and the United Arab Emirates increased the use of pipelines to export, bypassing Hormuz.
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In short, the world had far more optionality than narratives suggest. All the above meant that even though surplus oil turned negative after the Iran war, the deficit was modest (see Chart 3). And while it did eat into inventories, and global stockpile declined from 2025 highs, it remains higher than any point since 2022 (see the red line in Chart 2).
Conclusion
The key expectation underpinning the oil futures market is the belief that the current deficit is temporary and not a permanent destruction of supply. That the war will end sooner rather than later, the Strait of Hormuz will reopen, and oil flow will recover rapidly.
Indeed, the market currently estimates some 80 million barrels of oil sitting in super tankers ready to exit the strait. Gulf nations had been filling up all available storage capacity in the past few months — a stockpile that will hit the market quickly once shipping flows recover.
Shutdown in production, too, will resume swiftly. Kuwait has lifted its force majeure declarations. Iraq is in the process of restoring its oil output and expects to resume normal operations within the next one to two months. Qatar intends to recover 80% of pre-war LNG capacity within two months. The UAE aims to raise production output after announcing its exit from Opec at end-April 2026.
In its latest update, the IEA forecasts massive oil supply surplus in 2027, by as much as 5 mbpd. In short, it is more likely to see excess oil supply than a global shortage, contrary to all the populist alarmists. The market is a more dependable indicator than “experts”.
