Monthly Spotlight

Market fundamentals

The closure of the Strait of Hormuz is currently the most dominant driver in energy markets as it has resulted in a reduction of about 13-14% of global oil and oil product supply. In response, oil prices have risen and become more volatile, often moving based on the perceived status of negotiations between Iran and the U.S. Higher prices have resulted in slightly lower demand and increased supply from other countries.

Supply and demand dynamics

Source: International Energy Agency (IEA). Values given in millions of barrels per day.

Inventory estimates vary and can be misleading. In April 2026, IEA reports that there were just under 8 billion barrels of global oil inventory. While this is significant relative to demand, only a fraction of it is readily available for use. Oil production and refining facilities must maintain inventories above a certain threshold for operational reasons (often referred to as minimum operational threshold). Of that available supply, a significant portion is managed by governments as part of their strategic reserves and does not respond to market forces. Further, inventories vary regionally, with those in China making up a significant percentage of the total. The likelihood China would export oil at the risk of disrupting its own economy is low.

Key take-away

Energy prices are likely to remain elevated for the foreseeable future. While current West Texas Intermediate (WTI) prices range from $95 - $100 / barrel, many industry analysts argue they could quickly go to $150 or higher based on current market dynamics. This discrepancy suggests that investors broadly think the U.S. and Iran will reach a deal soon. Once the Strait of Hormuz does open, it will likely take some time before supply chains normalize and inventories replenish.

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