WTI crude futures fell 2.6% to $74.82/bbl on June 19 as the US and Iran digitally signed an agreement to suspend hostilities and restore energy trade. The deal, which includes a 60-day ceasefire extension, allows Iran to immediately increase oil sales under sanctions relief. Markets have swung sharply from pricing in the worst supply disruption in modern history to pricing a recovery.
The Strait of Hormuz, through which approximately 20 million barrels per day of oil and products flowed before the war, has been effectively closed since military action began on February 28. The IEA called this the largest oil supply disruption on record. Gulf producers cut total oil production by at least 10 mb/d as storage filled up with nowhere to send crude.
However, industry officials caution that full recovery will take time. Iranian production and refining capacity could take weeks, months, or even years to restore. Even by August, supply capacity may return to only 50-60% of pre-war levels. Tanker rates remain elevated as shipping companies hesitate to return to the region.
The EIA estimates global oil inventories are falling by 6.3 million b/d in Q2 2026 and expects prices to remain elevated until flows normalize. The Brent crude spot price averaged $107/bbl in May.
The disconnect between near-term supply disruption and forward price suggests markets are pricing a rapid recovery that may not materialize. Physical crude remains extremely tight — US inventories at 40-year lows, global stocks drawing 6.3 mb/d. Buyers should not assume current low prices persist. The risk of supply normalization lagging market expectations is significant. Consider hedging at least Q3 2026 requirements at these levels.