Hormuz Crisis Sparks Oil Price Volatility
Oil traders entered 2026 expecting a well-supplied year ahead, but that peace was shattered on January 3rd when news broke of a US operation against Venezuelan President Nicolas Maduro. Despite initial shock, it became clear that Venezuela's supply would not be impacted.
A predicted oversupply of 2m barrels per day led to expectations of significant stock builds not seen since the COVID shutdowns in 2020. However, on February 28th, a US and Israel attack on Iran killed the Supreme Leader, and the Straits of Hormuz were closed, leading to a severe undersupply situation.
The US Government's EIA forecast suggests an 8.5 million bpd supply deficit in Q2 2026, averaging 2.6m barrels per day. This exceeds the Libyan crisis shortfall of 2012-2013 and the COVID refinery recovery shortfall of 2021, both of which saw Brent Crude exceed $100/b.
The OECD stock data is a reliable indicator of market fundamentals. Historically, when days cover falls below 57, crude prices exceed $100/b. With forecasted OECD days cover at 53.90 in 2026, the market may be too optimistic with Brent Crude at just $77/b.