Oil prices dropped more than $1 per barrel on June 18 after the United States and Iran signed an interim agreement to end the war in the Middle East that could pave the way for a reopening of the Strait of Hormuz and a lifting of a U.S. blockade on Iranian oil traffic.
Brent crude futures were down $1.64, or 2.06 percent, at $77.91 a barrel as of 0427 GMT, and U.S. West Texas Intermediate fell $1.80, or 2.34 percent, to $74.99 a barrel, Reuters reported, noting that the benchmarks resumed their decline, reversing gains made on June 17 after U.S. President Donald Trump quipped that he could resume his bombing campaign if Iran’s leaders “don’t behave.”
The 14-point memorandum of understanding only released on June 17 begins a 60-day negotiation period during which Iran will allow unrestricted passage through Hormuz, restoring the strait’s full throughput within 30 days.
In its monthly market report, the International Energy Agency (IEA) expects a large oil supply glut in 2027 if the U.S.-Iran agreement is sustained and the Strait of Hormuz reopened.
“If the deal holds, exports and production from the Gulf should see a gradual recovery – not least because Iranian oil exports can fully resume once the U.S. blockade is lifted,” the IEA Oil Market Report (OMR) reads. Shipments through the Strait were already rising sharply in early June, supported by ship-to-ship transfers in the Gulf of Oman, beyond the blockade area, lifting total flows from a May low of 9.6 million barrels per day to around 12 million barrels per day.
A full recovery will not be immediate, however, as mines will have to be removed from the main Strait shipping lanes and supply chains will take time to normalize, the IEA cautioned. “Overall, global oil supply is expected to fall by 3.9 million barrels per day on average in 2026 to 102.4 million barrels per day. Gulf supply losses will be partly offset by continued gains from non-OPEC+ producers,” the IEA report read.
Robust growth from the Americas, along with steep U.S. Strategic Petroleum Reserve (SPR) releases, boosted Atlantic Basin crude exports to markets East of Suez since the start of the war by 3.5 million barrels per day. At the same time, crude imports into China and Japan, in particular, have declined sharply, with each falling by around 40 percent – or nearly six million barrels per day combined. Lower refinery crude runs in China, the Middle East, Eurasia and elsewhere in Asia, down by more than five million barrels per day year-on-year in the second quarter of 2026, transmitted this supply shock into product markets, the IEA report reads.
Despite the significant reductions in demand for crude oil and refined products, the buffers in the system continue to erode at a record pace. Global observed oil stocks have declined by 3.8 million barrels per day on average since the start of the war, with a sizeable draw of 143 million barrels (-4.6 million barrels per day) in May, according to IEA preliminary data. Further declines in the coming months could still take global oil stocks to historic lows before the market balance shifts to surplus towards the end of the year, the report reads.
“Our first look at 2027 balances shows a significant overhang emerging next year,” the IEA said, noting that global oil demand is projected to rise by a relatively modest two million barrels per day to 105.3 million barrels per day. By contrast, oil supplies look set to surge by around eight million barrels per day to 110 million barrels per day, the IEA said, noting, “This may provide a welcome respite to the market and an opportunity to replenish depleted inventories, or to build new strategic reserves, as countries review their energy strategies and policies in response to the crisis.”