Crude Oil
Escalation risk and tightening buffers reshape crude outlook
Crude markets pushed higher this week as escalating rhetoric around the Iran conflict reinforced supply concerns. While intraday volatility remained elevated, the broader trend reflected a market increasingly anchored to physical disruptions. The WTI prompt-month contract settled at $111.54/bbl on Thursday, with prices embedding an extended disruption of flows through the Strait of Hormuz.
Despite intermittent signals around potential de-escalation or policy off-ramps throughout the week, the underlying reality remained largely unchanged. Transit through the Strait is still severely limited, export routes across the Gulf remain constrained, and supply risks continue to build. However, by Thursday, WTI surged above $110/bbl following President Trump’s speech, in which he signaled continued US strikes over the next two to three weeks.
At the same time, the structure of the curve is beginning to reflect more than just a near-term shock. Strength extending into deferred contracts suggests a reassessment of how quickly balances can normalize, particularly as available buffers continue to erode. The conflict is currently removing more than 10 MMbbl/d of supply, while floating storage and crude on water, previously a key source of flexibility, are being drawn down to meet demand.
Heading into 2027, the market had been positioned for persistent oversupply, with inventories building and WTI expected to remain capped near the upper $50s. That view is now changing. As strategic reserve barrels are pulled forward and emergency buffers decline, prices are becoming more responsive to real-time supply and demand dynamics. Assuming a base case where flows begin to normalize by late April, the recovery in volumes is unlikely to be immediate. While permanent reservoir damage remains uncertain, the more immediate risk lies in the lagged return of production and exports, which could prolong tighter balances even after transit resumes. As a result, once the conflict stabilizes, the prior surplus narrative may no longer apply, with some analysts now pointing to ~$70 WTI as a more realistic range for 2027.
Looking ahead, the market remains highly path-dependent on the timing and extent of flow normalization. Even under a constructive scenario, reduced buffers and delayed supply recovery suggest tightness may persist beyond the immediate disruption window. Given the volatility and uncertainty surrounding the timeline of the conflict, AEGIS maintains a neutral outlook.