Oil prices fall sharply after Hormuz deal ends five-month supply crisis

Global oil markets are undergoing one of their sharpest reversals in years. Brent crude, the international benchmark, peaked at $117 per barrel in April 2026 at the height of the Strait of Hormuz crisis, then dropped below $70 per barrel on 1 July — nearly back to where it stood the day before hostilities began. The US Energy Information Administration (EIA) has now formalised that retreat in its July 2026 Short-Term Energy Outlook, cutting its full-year Brent forecast by 14% to $82 per barrel and its 2027 outlook by 18% to $65 per barrel.

What closed the strait — and what reopened it

The crisis began on 28 February 2026, when the United States and Israel launched coordinated airstrikes on Iran. In response, Iran effectively shut the Strait of Hormuz to most international shipping. The strait, a narrow waterway between the Arabian Peninsula and Iran, is the single most important oil transit chokepoint on the planet. Before the conflict, it carried roughly one-fifth of the world's seaborne oil trade and 20% of global liquefied natural gas (LNG) shipments. Europe alone sourced 12% to 14% of its LNG through it, largely from Qatar.

The closure devastated supply flows. At its peak in May, the EIA estimates that crude oil shut-ins across major Middle East producers reached 11.2 million barrels per day (b/d) — a volume roughly equivalent to the combined output of Iraq and the United Arab Emirates. On 18 June, Washington and Tehran signed a memorandum of understanding (MOU) to end the conflict and reopen the waterway, triggering a sharp rise in tanker traffic and an equally sharp fall in prices.

“"The closure of the strait, a major world oil transit chokepoint, significantly disrupted global oil flows resulting in oil price volatility." — EIA, July 2026 Short-Term Energy Outlook”

Supply returning faster than expected — but so is the oversupply

The EIA now expects most crude oil production to return to near pre-conflict averages by the end of 2026, with the majority of previously shut-in production restored in the first quarter of 2027. That faster-than-expected recovery has rapidly changed the market's character: the agency forecasts global oil inventories will flip from a draw of 2.2 million b/d in the third quarter of 2026 to a build of 2.7 million b/d in the fourth quarter, rising further to 5.0 million b/d throughout 2027. Global oil consumption, meanwhile, is forecast to fall by an average of 1.2 million b/d across 2026, with the steepest declines in non-OECD countries — primarily in Asia, where dependence on Middle East crude was greatest.

Analysts at Morgan Stanley warned even before the EIA's update that the rush of returning supply risked tipping the market into a severe glut. The EIA's own assessment is measured, noting that restocking of depleted strategic and commercial reserves will soften the price decline. Still, the direction of travel is clear: as supply grows faster than consumption, the agency expects persistent downward pressure on prices through 2027.

“"The market is front-running the prospective reopening of the Strait of Hormuz and likely pricing in the best-case scenario for the normalisation of flows." — Vandana Hari, founder, Vanda Insights, speaking to Al Jazeera”

What this means for consumers and markets beyond the US

For households and businesses across Europe, Asia, and beyond, lower crude prices translate — with a lag — into cheaper fuel and energy bills. The EIA projects US retail gasoline prices will fall from over $4.20 per gallon in the second quarter of 2026 to around $3.80 per gallon in the third quarter, and potentially below $3.10 per gallon as an annual average in 2027. International petrol and diesel markets tend to track crude movements closely, though the pace of pass-through varies by country depending on taxes, refining capacity, and local regulation.

Natural gas markets offer a more stable picture. Record US production is helping to meet rising demand, with Henry Hub spot prices — the US gas benchmark — averaging around $3.70 per million British thermal units (MMBtu) in 2026 before easing below $3.50 MMBtu in 2027. US LNG exports are projected to climb from 15 billion cubic feet per day in 2025 to 19 billion cubic feet per day by 2027, which will matter for European buyers who expanded US LNG contracts during the crisis to replace disrupted Qatari supplies.

Significant uncertainty hangs over all of these forecasts. The EIA itself noted that its July projections were completed before US President Donald Trump, speaking at the NATO Summit in Ankara, suggested the ceasefire with Iran might be over. Tit-for-tat strikes between US and Iranian forces in late June had already rattled markets and briefly pushed Brent back above $73 per barrel. The MOU, analysts note, lacks formal enforcement mechanisms, and the wording over sovereignty of the strait remains contested by Tehran. Any resumption of hostilities could rapidly unwind the price relief that consumers around the world are only beginning to feel.

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