Oil has certainly earned its nickname of "black gold" over the last two months, as the conflict in the Middle East has sent the energy resource hurtling to heights unseen since the summer of 2022. From levels in the low $60s in late February, Brent stood at $97.675 on 28 May, after briefly hitting heights above $110 during key conflict flashpoints. As a peace deal between the US and Iran now looks like it could be on the horizon, investors are beginning to believe that the worst of the oil price hikes is finally behind us. However, as the sideways trading of recent weeks shows, ending the oil shock might prove much harder than creating it was.
In addition to the geopolitical conflict and the closure of the Strait of Hormuz, there is also significant supply disruption across the entire region, with OPEC+ production capacity reduced and reserves across Europe and Asia dwindling. The question has now become whether output can even be restored to pre-crisis levels and whether demand will automatically recover once regular supply is restored. In this piece, we'll cover all of these major factors and more as we attempt to track oil's trajectory into the key Northern Hemisphere summer driving season and beyond.
A new normal
Bitcoin may still be the market's preferred volatility play, but oil has once again become the world's most valuable geopolitical asset. Brent is currently trading fairly sideways between $90 and $100 per barrel, after one of the most unpredictable periods since the summer of 2022. Following the outbreak of war in the Middle East, prices briefly exploded above $120, with some intraday trades reported near $125–128 amid escalations in the Iran-US conflict that threatened a potential multi-month closure of the Strait of Hormuz. However, the defining feature of the market over the past two weeks has not been the spike itself, but the violent repricing lower each time rumours of a ceasefire or shipping agreement emerge. Brent fell more than 5% in a single session earlier this week, briefly dipping toward much more natural levels in the high $80s, after Iranian state media suggested a draft peace framework could reopen Hormuz within a month.
The problem is that traders no longer fully trust the headlines or President Trump's suspiciously regular Friday afternoon comments promising peace. Physical disruption remains severe, shipping insurance costs are still much higher than a year ago, and multiple analysts now argue that even a formal ceasefire would not normalise Gulf energy flows until well into 2027. That explains why oil keeps rebounding aggressively after each sell-off. The market is gradually moving away from pricing an immediate catastrophe and toward pricing a persistent structural impairment of supply capacity. Global inventories have already been drawn down heavily during the conflict, with some estimates suggesting stockpile declines of 4–5 million barrels per day at peak draw periods as consumer nations leaned on reserves to stabilise the market. At the same time, infrastructure damage across parts of the Gulf has raised fears that some lost production may not return quickly even if the diplomatic situation improves. This is a crucial shift in tone from earlier in the year. The market is no longer trading purely on fear of disruption, but increasingly on the possibility that some of the disruption we've been seeing has now become semi-permanent.
Use it or lose it
The next phase of oil price development now depends on the interaction between three forces: diplomacy, OPEC+ and general macroeconomic demand. From the stabilisation of Brent within the $90-100 range, the market's baseline assumption appears to be that outright escalation between the US and Iran has peaked, but that a fully normalised supply environment remains distant. This reality leaves OPEC+ in a very powerful position. According to Reuters, several member states are reportedly considering a modest output increase of roughly 188,000 barrels per day at the next meeting, but traders remain sceptical that this will materially offset missing Gulf flows, which account for almost a quarter of the global oil supply. More importantly, though, spare capacity itself is becoming a concern. Analysts now estimate that effective OPEC spare capacity could fall to 2.5 million barrels per day. This is crucial because it reduces the market's ability to absorb shock price increases.
In previous crises, traders could safely assume that Saudi Arabia and its allies would eventually flood the market to cover supply-side shortfalls. This time, there is growing uncertainty about how much truly deployable supply remains, and how quickly it could reach customers while Hormuz shipping remains impaired. In this context, macroeconomic conditions have become unusually important. A strong US dollar and still-elevated Treasury yields are acting as a brake on further upside because traders increasingly worry that sustained $100+ oil could trigger demand destruction, particularly in Europe and parts of Asia. Meanwhile, US crude inventories have continued to decline, with the API recently reporting another 2.8 million barrel drawdown, which marks a sixth consecutive weekly reduction. The result is a market that is caught between opposing forces: structurally tight supply and fragile global demand. If diplomacy progresses meaningfully and some Gulf flows resume, Brent could stabilise back into the $85-95 range over the medium term. But if talks fail or shipping disruptions persist through the summer demand season, the market may quickly retest the $110–130 range, particularly given how depleted inventories and spare capacity have become. The key difference between now and earlier energy shocks is that this no longer looks like a short-lived geopolitical spike. Increasingly, the market appears to be treating it as a prolonged restructuring of global oil logistics and risk pricing.
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