Crude Oil
Crude Surges as Middle East Conflict Broadens Supply Risks
Crude prices moved sharply higher this week as renewed fighting between the US and Iran reinforced expectations that disruptions across the Middle East could persist well beyond year-end. Iran has signaled little willingness to back down, while senior US officials have reportedly raised the possibility that the conflict could continue through the end of Trump’s presidency. The escalation pushed WTI above $100/Bbl.
US strikes have targeted Iranian oil tankers, while additional vessels were reportedly struck off the coast of Oman. The conflict has also broadened beyond the Strait of Hormuz. Yemen’s Houthis have continued attacking Saudi energy infrastructure and have advanced toward coastal areas bordering the Bab el-Mandeb Strait, raising concerns that disruptions could intensify in the Red Sea. At the same time, Iran has announced plans for a new maritime exclusion zone that could further complicate tanker movements through the Gulf.
The physical impact is increasingly visible outside the region. Chinese crude purchases have rebounded as buyers seek alternatives to constrained Middle Eastern supply, supporting prices for African, Canadian and Latin American barrels. The volume of crude held at sea has also fallen by more than 150 MMBbl since mid-July, reducing another buffer that had helped the market absorb disrupted flows earlier in the conflict. With inventories already under pressure, stronger Chinese demand and continued risks to crude and refined-product supply leave the market increasingly sensitive to further escalation.
However, higher prices are beginning to weigh more heavily on the demand outlook. The IEA now expects global oil demand to decline by 2.5 MMBbl/d this year, providing an important offset to the increasingly bullish supply picture. Meanwhile, the EIA has extended its assumption of constrained Middle Eastern production and trade flows through the end of 2026, increasing its projected 4Q26 inventory draw to 1.7 MMBbl/d from 0.6 MMBbl/d previously.
AEGIS maintains a neutral view on WTI. A prolonged conflict, shrinking inventory cushion and growing risks across multiple shipping corridors support further upside through the remainder of 2026. However, the longer-term balance remains considerably more bearish. The EIA assumes most Middle Eastern production and trade flows return to pre-conflict levels during 2Q27 and still projects full-year inventory builds of roughly 4.9 MMBbl/d as supply growth outpaces demand. Under that scenario, the agency expects WTI prices to decline throughout 2027.