International benchmark Brent was trading around $93 per barrel on Wednesday despite an exchange of strikes between the US and Iran. Brent has remained highly volatile this week as the US, Israel and Iran traded attacks, but prices have stayed below $100 per barrel. Markets are betting that both the US and Iran want to avoid a return to full-scale war and are using limited strikes largely for signalling during the truce period while negotiating a permanent deal, an industry executive said.
Also read: Iran war fallout: Fuel use drops 6.5% in May; experts see warning signs for economy
Significant demand destruction globally is also limiting the rise in prices despite what industry executives describe as the worst energy supply squeeze ever. The EIA has forecast a decline in global oil demand of 1.1 million barrels per day in 2026, compared with the increase of 1.2 million barrels per day it had projected in February.
A sharp decline in China’s crude imports, large releases from strategic reserves and strong exports from the US are all contributing to lower-than-expected oil prices. Rapid adoption of electric vehicles in China has led to substantial demand destruction, and the country, which holds record strategic reserves, can manage with lower oil imports, another industry executive said.
Current prices, while significantly below Brent’s spot average of $117 per barrel in May, remain well above the pre-war average of $71 per barrel in February. Markets are also unlikely to return quickly to pre-war price levels even if a deal is reached between the warring nations.
“Once flows through the Strait of Hormuz incrementally resume, allowing producers to gradually restore shut-in production, we expect prices to fall to an average of $79/b in 2027,” the EIA said.
High oil prices and supply constraints are expected to continue putting pressure on governments and consumers across the globe. In India, refined product consumption fell 6.5% year-on-year in May. The government is seeking to contain its ballooning subsidy bill through a combination of price hikes and a reduction in the number of subsidised liquefied petroleum gas cylinders provided to poor households.