Global oil markets

Global oil prices
Following the signing in June of the memorandum of understanding between the United States and Iran, the spot price of Brent crude oil fell as low as $69 per barrel (b) on July 2. Global crude oil prices rose and volatility increased later in July following renewed attacks on tankers transiting the Strait of Hormuz and the related reduction in oil shipments through the waterway. The Brent spot price reached as high as $105/b on July 23.

In addition to renewed attacks on ships transiting the Strait of Hormuz, crude oil prices were driven higher due to a new blockade threat on Saudi Arabia’s oil exports through the Bab el-Mandeb Strait. The Bab el-Mandeb is both a major world oil transit chokepoint and one of the alternative routes used to move Saudi Arabia’s oil shipments while avoiding the Strait of Hormuz. Saudi Arabia retains the option to divert flows through the Suez Canal as well as via the Sumed pipeline in Egypt. However, these alternatives take longer, are more expensive, and are more limited in capacity.

We estimate that crude oil and petroleum liquids transported through the Strait of Hormuz averaged 4.9 million barrels per day (b/d) in the second quarter of 2026 (2Q26), down from an average of 21.6 million b/d in 4Q25 before the conflict began. Similarly, total volumes of crude oil and liquids through the Bab el-Mandeb strait averaged 8.1 million b/d in 2Q26, up from an average of 5.4 million b/d in 4Q25 as Saudi Arabia re-routed crude oil flows away from the Strait of Hormuz through the East-West pipeline to the port of Yanbu on the Red Sea.

We assess that production shut-ins averaged 5.5 million b/d in July. For this analysis, we assume that oil shipments through the Strait of Hormuz will remain severely constrained through August, with flows slowly increasing in September. This assumption is prompting us to raise our forecast of shut-in crude oil production in August, further reducing inventories. We do not assume that the recent threats to ships transporting Saudi Arabian crude oil through the Bab el-Mandeb strait have resulted in any additional shut-ins of crude oil production. If these assumptions hold, we expect it will take until early 2027 for production and trade patterns to generally return to pre-conflict status. We anticipate nonetheless that some producers around the Persian Gulf will not be able to bring oil output back to pre-conflict averages during the STEO forecast period.

Because of the large drawdown in global inventories triggered by continued disruptions in the Strait of Hormuz, we forecast that oil prices will remain elevated until global oil flows return to normal and oil inventories are replenished. We estimate that global oil inventories fell by an average of 4.2 million b/d in 2Q26 and that they will fall by an additional 3.8 million b/d on average in 3Q26. As a result, we forecast the Brent crude oil spot price will average around $85/b in 3Q26, $11/b higher than in last month’s STEO. Once the traffic through the Strait of Hormuz gradually increases and shut-in oil production increasingly restarts, we forecast oil prices will begin to fall, decreasing to an average of $78/b by 4Q26. We assess that most shut-in oil production will be largely restored in 1Q27 and that global oil inventories will again start building, gradually lowering oil prices to an average of $69/b in 2027.