Ceasefire Fails to Ease Physical Tightness as Supply Risks Persist
The crude market this week remained defined by geopolitical disruption and uncertainty surrounding the Strait of Hormuz, with physical supply constraints persisting even as diplomatic efforts introduced periods of temporary relief. The WTI prompt-month contract settled at $96.57/bbl on Friday, up or down $14.97 from last week’s frenetic close, as the market navigates a complex mix of ceasefire negotiations, infrastructure risks, and evolving supply expectations.
A two-week ceasefire was announced midweek, providing a framework for reopening the Strait under Iranian coordination and allowing limited transit to resume. Despite this development, the underlying physical reality remains largely unchanged. Flows through the strait continue to be constrained, with limited vessel movement, while broader regional tensions and ongoing strikes continue to cloud the outlook for a durable resolution. Prices moved sharply lower following the announcement, reflecting a rapid unwind of risk premium despite no meaningful improvement in physical flows.
At the same time, risks to energy infrastructure continue to build. Recent strikes have reduced Saudi Arabia’s production capacity by nearly 600 Mbbl/d, while flows along the East West pipeline fell by roughly 700 Mbbl/d, limiting the ability to bypass the strait and redirect crude to the Red Sea. These disruptions highlight that supply losses extend beyond transit constraints and may delay recovery, as infrastructure repairs and logistical normalization are unlikely to be immediate.
The latest Short Term Energy Outlook from the Energy Information Administration reinforces this tightening backdrop. The report, released prior to the ceasefire, assumes disruptions persist through the end of April and reflects a sharp shift from prior expectations of surplus conditions. Crude production shut ins are estimated to have averaged 7.5 MMbbl/d in March and are expected to peak near 9.1 MMbbl/d in April, driving projected inventory draws of 5.1 million barrels per day in the second quarter.
The market is continuing to move away from the surplus framework that defined expectations earlier this year. Most analysts assume the conflict resolves by the end of April, with flows recovering in May and nearing pre conflict levels by June. However, JPMorgan Chase suggests a more cautious path, with only partial volumes returning in May and full restoration not occurring until June, while a slower recovery into July could add $15 to $20 per barrel of upside risk.
Looking ahead, the market remains highly dependent on the timing and durability of any resolution. Temporary de-escalation has not yet translated into a meaningful improvement in flows, and supply risks remain elevated. With disruptions still material and recovery timelines uncertain, crude continues to trade within a tighter and more fragile balance. AEGIS maintains a neutral outlook.
Crude Oil Factors
Geopolitical Risk Premium. (Bullish, Slightly Priced In) President Trump signaled a further escalation in the conflict with Iran in the weeks ahead. Price jumped above $110/Bbl following Trump’s address, where he maintained that ongoing US strikes over the next two to three weeks would lead to the Strait of Hormuz “naturally” reopening.
Speculator Positioning (Bearish, Priced In) Positioning in crude remains elevated following a period of strong geopolitical risk premium, though the ceasefire has triggered a partial unwind in upside exposure. Call skew and bullish positioning remain above historical norms, reflecting continued demand for upside protection. However, the recent pullback highlights how quickly positioning can reset, leaving the market vulnerable to sharp moves in either direction as sentiment shifts.
Oil/Product Inventories. (Bullish, Priced In) Global crude and product inventories are drawing as supply disruptions outweigh weaker demand. The EIA estimates production shut ins will peak near 9.1 MMbbl/d in April, contributing to projected draws of 5.1 MMbbl/d in 2Q2026. While coordinated SPR releases provide some offset, logistical constraints and geographic mismatches limit their ability to fully replace disrupted flows. As a result, inventories are tightening across key regions, reinforcing near term supply risk.
OPEC Unwind. (Bearish, Mostly Priced in) OPEC+ continues to signal incremental increases in production targets, reinforcing a medium-term loosening bias in global balances. However, these increases are largely symbolic in the near term, as significant volumes remain shut in due to ongoing disruptions and constrained export capacity through the Strait of Hormuz.
China De-Stocking. (Bearish, Surprise)China has begun allowing state refiners to draw on commercial crude inventories, reducing the need for incremental spot purchases. Estimates suggest drawdowns of up to ~1 MMbbl/d from April through June, effectively replacing a portion of import demand. After acting as a consistent source of buying pressure through aggressive stockpiling, this shift removes a key marginal buyer from the market. As refiners rely on domestic inventories to offset disrupted flows, the loss of China’s import demand is easing pressure on the spot market despite ongoing supply constraints.
USD (Bearish, Priced In) The Bloomberg Dollar Spot Index climbed to a two-month high, extending weekly gains as elevated crude prices raise concerns that energy-driven inflation could delay Federal Reserve rate cuts. Oil trading higher has reinforced expectations that inflation pressures may persist, prompting traders to reduce the amount of easing priced into Fed policy. Interest-rate swaps now imply less than 25 bps of rate cuts in 2026, down sharply from roughly 60 bps expected before the Iran conflict escalated.
Large International Projects (Bearish, Priced In) Major offshore developments in countries like Brazil and Guyana are now translating years of capital-intensive investment and long development timelines into meaningful production growth. These deepwater projects are finally ramping volumes into the global market, adding steady, non-OPEC supply that contributes to medium-term balance loosening and moderates structural upside pressure on crude prices.
Ukraine-Russia Resolution. (Bearish, Surprise) Talks between Russia and the Ukraine are ongoing and being mediated by the US, but no tangible results are yet to arise that would bring an end to the war in Ukraine. A peace deal, if followed by the elimination of sanctions on Russian oil over its invasion of Ukraine, could unleash supply from the world's third largest producer.
Trade War. (Bearish, Mostly Priced In) The US Supreme Court ruled 6–3 that former President Trump’s broad global tariffs imposed under emergency powers were unconstitutional, dealing a significant setback to his trade agenda. However, efforts to maintain or reimplement tariffs under alternative legal authorities have preserved uncertainty around US trade policy, keeping the risk of renewed trade tensions and demand headwinds in play for global markets.
Projected Oversupply. (Bearish, Mostly Surprise) As the Strait of Hormuz remains closed, the latest EIA STEO revised implied stock build averaging roughly 3 MMbbl/d to 1.87 MMbbl/d for 2026, with the surplus dropping as low as 700 Mbbl/d during 2Q2026. However, Cal 2027 has been repricing higher as sanctioned barrels at sea have been depleted with the recent waiver of US sanctions. Additionally, IEA-member countries will have to refill strategic reserves heading into 2027. The market is quickly running through the large buildup of barrels at sea, and the SPR releases cannot compensate for the losses from the Strait of Hormuz.
Iran Supply. (Bullish, Slight Surprise) Similar to Russian barrels, the Trump administration has also granted waivers for sanctions on Iranian barrels at sea. The market is also keeping a close eye on potential strikes to the energy infrastructure on Kharg Island, Iran's main oil export and storage terminal. Despite the closure of the Strait, Iran's own production and exports remain intact, but strikes to Kharg Island could have long-term repercussions on their ~ 3.2–3.3 mb/d of production and ~ 1.7–2.0 mb/d of exports.
Russian Supply. (Bullish, Slight Surprise) In an effort to cool the recent surge in prices, the US issued a second temporary waiver allowing purchases of Russian crude. The latest measure applies to cargoes loaded before March 12 and expands on an earlier directive that primarily allowed India to increase imports.
Venezuela. (Bearish, Slight Priced In) Venezuela remains a constrained but potentially growing source of supply, producing roughly ~0.8–1.1 mb/d in recent months, far below historical capacity and less than 1% of global output.
Recent policy shifts and easing restrictions could allow incremental increases, with analysts suggesting output could rise by roughly 30% from current levels in the short to medium term, though structural limitations and infrastructure decay cap near-term upside.
Strait of Hormuz Disruption (Bullish, Surprise) Shipping activity through the Strait of Hormuz remains severely constrained as insurers and operators continue suspending transits through the waterway amid ongoing hostilities between the US, Israel and Iran. With tanker traffic still limited, Gulf producers are increasingly facing export bottlenecks that could force additional production shut ins if the disruption persists.
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