The risk premium embedded in crude oil prices has diminished significantly, from an estimated $8/bbl at the peak of Middle East tensions to approximately $2–3/bbl currently, as diplomatic progress between Washington and Tehran reduced the probability of supply disruptions through the Strait of Hormuz.
The US decision to grant Iran a 60-day license to sell oil on international markets has been a key catalyst. Iran has already shipped more than 30 million barrels over the past week, and additional supply could add 500,000 bpd to global markets within two months.
OPEC+ production discipline continues to provide a floor under prices, with compliance at 104% in May. However, the group faces pressure to adjust quotas downward as non-OPEC supply growth, particularly from the US and Brazil, absorbs demand growth.
US shale producers maintain capital discipline, with the rig count falling to 485, the lowest since January 2025. However, efficiency gains mean production continues to grow even with fewer rigs, supporting the 13.4 million bpd output level.
The macro outlook for oil demand remains uncertain. The IEA cut its 2026 demand growth forecast by 200,000 bpd to 980,000 bpd, citing weaker industrial activity in China and Europe.
With the risk premium largely removed, crude prices better reflect underlying fundamentals. Buyers should use current levels to hedge 30–50% of Q4 2026 requirements. The floor near $70/bbl is well-supported by OPEC+ intervention history.