Traders once again find themselves in a volatile oil market shaped primarily by geopolitical developments in the Middle East. Early optimism around US-Iran negotiations briefly pushed prices lower, with Brent falling below USD 96 per barrel. However, sentiment reversed after US strikes on Iranian missile sites and rising regional tensions, driving prices back up to around $100 per barrel.
Higher crude prices are increasingly feeding into consumer costs. Fuel prices have risen significantly in countries including the UK, China, and India, with governments either raising retail prices or encouraging reduced consumption. Meanwhile, concerns about supply disruptions - particularly linked to the Strait of Hormuz - are prompting countries such as Pakistan to strengthen energy security through strategic reserves and domestic storage expansion.
On the supply side, the International Energy Agency warns the market could enter a “red zone” during peak summer demand. Ongoing conflict has removed over 14 Mn bpd - more than 13 per cent of global demand - while stock releases and reserves are insufficient to offset the shortfall fully. A sustained reopening of key supply routes is seen as critical to stabilisation.
Demand dynamics are shifting in response to high prices. Analysts expect demand destruction - particularly reduced transport fuel consumption - to play a major role in balancing markets. Forecasts for countries like India have been revised downward, reflecting weaker mobility and policy-driven conservation efforts. In downstream markets, refinery operations face disruption from both conflict and policy. Ukrainian attacks on Russian facilities have reduced output, while China continues to restrict fuel exports, limiting global supply flow adjustments.