The shutdown of the Strait of Hormuz on February 28 represents the single largest supply disruption the oil market has seen, eliminating in excess of 15% of world supply. Even so, Brent crude has moved only modestly, settling in the $90 to $100 a barrel neighborhood, according to an analysis by Yardeni Research.
Yardeni identifies six principal forces that have blunted what some forecasters expected would be a much larger surge in prices - forecasts that at times reached $150 to $200 per barrel.
First, alternative pipeline routes have been brought online. Saudi Arabia and the United Arab Emirates have increased pipeline throughput, and together they now transport roughly 7 million barrels per day by pipeline, versus the 17 to 20 million barrels per day that previously transited the Strait of Hormuz.
Second, a combination of emergency sources has supplied the market. These include continued flows under Iranian and Russian oil waivers, releases from IEA strategic reserves and sales from Chinese stockpiles. Yardeni says these measures have further softened the immediate supply shock.
Third, Yardeni cautions that the Brent benchmark does not tell the whole story. While Brent has hovered near $100 a barrel, some regional markets have experienced far higher prices. Yardeni notes that Asia-delivered Dubai crude has rallied as high as $260 per barrel, with local buyers in Asia paying sharp premiums.
Fourth, demand trends are shifting. Yardeni highlights rising demand destruction, citing the IEA projection that global oil demand will decrease by 80,000 barrels per day in 2026. That deterioration in demand serves to temper upward pressure on prices.
Fifth, the research note points out that the global economy is less energy intensive than it was during the oil shocks of the 1970s, reducing the sensitivity of economic activity - and therefore oil demand - to supply disruptions.
Sixth, the structure of the futures market signals that traders expect the disruption to be temporary. Steep backwardation in oil futures suggests market participants anticipate higher near-term scarcity but lower prices further out, consistent with a short-lived shock.
On the outlook, Yardeni expects Brent crude to trade in the $85 to $100 range through the remainder of the year, a level it describes as above pre-conflict prices but far below some of the most dire forecasts.
The note also links monetary-policy expectations to the oil outlook, saying rate hikes are unlikely while long-term inflation expectations remain anchored and the risk of a wage-price spiral stays low.
Summary
- The Strait of Hormuz closure has removed more than 15% of global oil supply, yet Brent remains in the $90 to $100 per barrel band.
- Yardeni Research lists six moderating factors - bypass pipelines, emergency supplies, regional price divergence, demand decline, lower energy intensity and futures backwardation.
- Yardeni forecasts Brent will trade between $85 and $100 for the rest of the year and sees limited scope for rate hikes if inflation expectations and wage dynamics remain stable.
Key points
- Energy markets: Alternative pipelines and emergency supply measures have reduced the immediate impact on global crude availability.
- Regional markets and refining: Asia is experiencing much higher local prices, with Dubai crude spiking to as high as $260 per barrel, indicating uneven regional stress.
- Macro and monetary policy: Slower demand growth and anchored inflation expectations are reducing upward pressure on prices and the likelihood of policy tightening.
Risks and uncertainties
- Duration of the Strait closure - The analysis assumes current mitigation measures remain effective; a prolonged closure could alter the balance.
- Demand trajectory - The IEA projection of an 80,000 barrel per day contraction in 2026 indicates demand weakness, but shifts in consumption patterns would change price dynamics.
- Regional price volatility - Sharp premiums in Asia, such as the spike in Dubai crude to $260 per barrel, create localized market stress that could affect refiners and consumers in those regions.