- Unprecedented supply disruptions are not leading to record crude oil prices.
- Investors are selling Brent and WTI on news of the US-Iran de-escalation.
Prices are high, but do not reflect the full severity of the problems arising in the market. According to IEA estimates, oil and petroleum product flows through the Strait of Hormuz have fallen from 20 million to 3.8 million barrels per day. Around 80 energy infrastructure facilities in the Middle East have been damaged and restoring them will take up to 2 years. OPEC+ production fell by 9.4 million bpd in March. In April, the supply deficit will increase by a further 2.9 million bpd before gradually narrowing.
The global economy is facing an acute shortage of crude oil. In the week ending 10 April, only 4 out of 40 cargo requests from oil refining companies were met. The cost of delivery contracts for the coming weeks stood at $140 per barrel. High prices will ultimately force buyers to abandon black gold. According to IEA estimates, instead of the previously expected growth in demand of 730,000 bpd, consumption will fall by 80,000 bpd.
The futures market, by contrast, remains calm. Any sign of de-escalation is seen as a reason to reduce the military risk premium, leading to a fall in Brent and WTI prices. The catalyst for the bears’ attack was Donald Trump’s statement that the conflict in the Middle East is nearing its end and that an extension of the ceasefire will most likely not be required.
Goldman Sachs believes that the disruption to oil production in the Persian Gulf has proved less severe than anticipated. The correction in Brent and WTI prices is driven by investors shifting from panic over supply disruptions to a more cautious stance.
Meanwhile, there is a growing sense that rising oil prices are not alarming the US as much as they used to be. Washington has no intention of extending the lifting of sanctions against Iran and Russia. The deadlines are due to expire shortly. Coupled with the blockage of the Strait of Hormuz by US ships, this increases the size of the potential deficit in the oil market and, in theory, should lead to a rise in Brent and WTI prices. In reality, investors have become so convinced that the conflict is de-escalating that they are ignoring the fundamentals.
One reason for the US’s calm is the rise in American oil exports to a record level of 5 million bpd. In 2025, supplies were estimated at 4 million bpd. Washington is making a tidy profit from the war.
