As the clash between Israel and Iran intensified, projections piled up that international oil prices could soar to $200, but the outcome was different. Brent crude, the benchmark for international oil prices, at one point last month rose to $126 a barrel, but then turned lower and recently fell below $80. Experts say investors focused on the current supply-demand picture rather than future supply shortages.
On the last month, Fatih Birol, executive director of the International Energy Agency (IEA), warned that "the world is in the biggest energy crisis in history." Some investment banks projected that if the war dragged on, oil prices could rise to $200 a barrel. But the outcome was different. Brent crude, which at one point last month climbed to $126 a barrel, recently fell below $80.
Robin Brooks, a senior fellow at the Brookings Institution in the United States, said in an interview with the Financial Times (FT) of the United Kingdom, "During Russia's 2022 invasion of Ukraine, similarly apocalyptic oil-price projections emerged but did not materialize," adding, "The oil market is much more resilient than many people think." The energy industry worried about supply disruptions from a prolonged war, but investors were seen as placing more weight on the potential for a demand slowdown. Brooks said, "The oil industry was looking at the immediate drawdown in inventories, but from a macroeconomic perspective it failed to fully reflect the possibility of weakening demand."
In fact, even at the height of the war, crude supplies did not come to a complete halt. Major oil producers maintained production capacity, and there was still a possibility of negotiations between the United States and Iran. Aldo Spanjer, head of commodity strategy at BNP Paribas, told the FT, "Markets tend to focus more on short-term supply availability than on future supply-demand balance."
The FT assessed that, recently, market sentiment is quickly shifting from fears of shortage to expectations of oversupply. According to commodity data firm Kpler, about 70 million barrels of Iranian crude and about 90 million barrels of non-Iranian crude are currently waiting to sail in the Gulf. If tensions ease around the Strait of Hormuz, these volumes could be supplied to the market in sequence. The IEA also projected in a recent report that "if peace holds, a substantial crude oil oversupply could emerge in 2027."
However, some note that falling oil prices do not immediately mean supply chains are normalized. The shipping industry is still suffering aftereffects from fuel shortages. Diana Shipping, one of the world's largest bulker operators, recently said some vessels diverted to Korean ports instead of Japan to take on fuel. DryDel Shipping said bunker wait times at Singapore and Fujairah ports have increased from the usual two to three days to as long as 10 to 12 days.
Marine fuel prices have also surged. At Zhuhai, the world's third-largest bunkering port, shortages of very low sulfur fuel oil (VLSFO) appeared, and on the 3rd fuel prices jumped to $1,495 per ton (t). Some carriers said there were cases where they received lower-quality fuel and had to discharge it again.
Experts say the situation illustrates the characteristics of the oil market. A geopolitical shock in the form of war occurred, but the market reacted more sensitively to the actual supply situation and demand trends than to worst-case scenarios. A market that, just a month ago, was worried about crude shortages is now starting to discuss the possibility of oversupply.