Sometimes in life, the harsh reality is hard to accept. This reality is that we live in a changing yet highly globalised world, including in the oil market, and we have to adapt to this change, however tough it may be. In this case, we just have to accept that whereas we were once told one thing, we are now being told something quite different about the oil industry in the Middle East. Over the last few weeks, the oil market has seen a significant shift. Following the sudden spike in prices triggered by supply disruptions arising from the conflict over the Strait of Hormuz, the situation has quickly altered to a scenario of greater availability and expectations of a surplus by 2027. As a result, oil prices have been sliding while market signals point to a further decline.
One of the main factors behind this shift is the rebound in maritime traffic through the Strait of Hormuz, one of the world’s main oil export routes. Although a slower recovery was initially expected following the restrictions imposed during the conflict, the volume of oil tankers has risen sharply and exports from the main producers in the Persian Gulf are now approaching pre-crisis levels. This restoration of supply is ramping up the amount of oil out there on international markets.
Nonetheless, the upswing in provision comes alongside the persistence of two drivers which had already helped to offset much of the supply shortfall in previous months. Firstly, the United States is keeping up exceptionally high net oil exports, well above those posted a year ago. Secondly, Chinese oil imports are still at low levels due to continued weak domestic demand and less activity at the country’s refineries.
The interaction of these two factors is leading to a significant supply glut. Even as oil from the Middle East is gradually coming back on stream, high US exports and sluggish Chinese demand are putting pressure on the market’s ability to absorb the new volumes to be had.
Signals from the financial markets also reflect this changing scenario. The Brent futures curve has gone from a state of backwardation, typical of markets with a shortage of immediate supply, to a contango structure, in which futures prices are higher than spot prices. This pattern is usually interpreted as an indicator of plentiful short-term supply. Prices for Brent, WTI and Dubai crude have fallen back to levels even below those seen before the start of the conflict.
Demand for oil remains relatively strong. Accordingly, current oversupply is primarily due to an increase in oil availability rather than a general slump in energy use.
The outlook for 2027 remains bearish. Forecasts point to a significant production surplus as a result of the expected increase in supply from several countries. These include the United Arab Emirates, following its withdrawal from OPEC; Iran, which has benefited from the easing of international sanctions; Venezuela, where production has risen more than anticipated; and the United States, where output continues to grow. Meanwhile, global demand will pick up somewhat following the downturn during the conflict, albeit slightly below initial estimates.
Against this backdrop, the minimum volume of oil required to go through the Strait to balance the global market takes on particular significance. Estimates suggest that the flow only needs to reach roughly 65 per cent of its pre-conflict level for shortages to disappear and a supply surplus to re-emerge. As traffic recovery is currently on track to comfortably exceed that threshold, the most likely scenario is a build-up of commercial stocks in 2027 and further downside pressure on prices.
The oil market has thus shifted in the space of a few weeks from severe tension brought about by shortages to ample supply and expectations of a surplus. Although there is still a risk premium owing to the prospect of further disruptions in the Strait of Hormuz, the central scenario points to a slightly bearish trend in the price of Brent over the coming quarters as a result of rising global output.
Date of report: July 8th of 2026