NEW YORK (Realist English). Global oil prices are falling sharply as shipping through the Strait of Hormuz resumes and millions of barrels of crude that had been trapped in the conflict zone for nearly four months return to the market.
Just a few weeks ago, leading industry experts were warning of critically low inventories and the risk of an oil shock. Today, the market is discussing a supply surplus that could completely reshape the global energy landscape.
As Business Times notes, “oil prices are falling everywhere as the US-Iran peace agreement releases a wave of supply, overwhelming buyer demand and triggering talk of a global crude glut.”
The turnaround has been stunning: just three months ago, the key physical oil benchmark hit an all‑time high; today, Brent futures have erased all their war‑related gains, plunging 43% from their April peak.
Prices: From $120 to $70
The year began with an oil shock: after the closure of the Strait of Hormuz, through which about 20% of global oil supplies passed before the war, Brent prices soared above $120 per barrel.
However, the signing of the “Islamabad Memorandum” on June 17 and the subsequent talks in Doha dramatically changed the situation. As of July 2, Brent was trading at $70.84 per barrel, while WTI stood at $67.75 — the lowest levels in four months.
As Al Jazeera notes, “oil prices are falling for a third consecutive day after Qatar reported progress in US-Iran talks over the Strait of Hormuz.” Investment bank Morgan Stanley has already cut its forecasts twice in two weeks, warning of the risk of oversupply.
Supply: Over 60 Million Barrels Return to Market
The main driver of the price decline has been the resumption of exports after the opening of the Strait of Hormuz. Within weeks of the memorandum’s signing, more than 60 million barrels that had been trapped in the strait since the start of the war flooded the market.
Saudi Arabia and the UAE have already returned to pre‑war export levels, facilitated by US military protection for vessels passing through the strait, as well as alternative pipeline routes. Iranian oil, which had been under tight US sanctions for years, is now again available for purchase after Washington issued sanctions waivers.
Nevertheless, as Investing.com analysts warn, the current recovery in traffic reflects more of a “delayed departure of tankers” than a full restoration of Middle Eastern production.
Production in Iraq, for example, remains significantly below pre‑war levels: in May, the country produced 1.76 million barrels per day, compared with more than 4 million before the war. Restoring wells and logistics will take time, and insurance companies remain reluctant to cover vessels entering the Gulf.
Demand: China Steps Out of the Game
The market faces falling demand amid rising supply. The International Energy Agency (IEA), in its June report, lowered its 2026 demand forecast by 700,000 barrels per day to 1.1 million barrels per day year‑on‑year, after second‑quarter deliveries fell by 5 million barrels per day.
A key factor has been the sharp drop in imports by China — the world’s largest oil buyer. China remains on the sidelines, adding further pressure on prices. At the same time, as Al Jazeera notes, oversupply forecasts depend heavily on whether Chinese purchases remain low and whether the fragile truce holds.
Forecasts: Deficit Turns to Surplus
Leading investment banks are one by one revising their forecasts downward.
Goldman Sachs on June 16 lowered its Brent forecast for the fourth quarter of 2026 to $80 per barrel (from $90), and its average price for 2027 to $75 (from $80). The bank expects the market to shift into a surplus of 3.2 million barrels per day in 2027.
Morgan Stanley also cut its forecasts twice in two weeks, warning of the risk of a global glut.
The IEA forecasts that global supply will fall by 3.9 million barrels per day in 2026 to 102.4 million, but then rebound sharply to 110.3 million in 2027, while demand will rise only to 105.3 million. As the agency’s report states, “our first look at 2027 balances shows a significant surplus next year.”
The World Bank, in its February 2026 commodity markets outlook, forecasts that global commodity prices will fall to a six‑year low, with the aggregate price index declining by 7% this year. The main reason cited is a historic oil surplus averaging 1.2 million barrels per day in 2026, comparable only to the crises of 1998 and 2020.
Mike McGlone, senior strategist at Bloomberg Intelligence, warns that within a normal market cycle, WTI prices could return to around $40 per barrel. The US and Canada already have a surplus of oil and liquid fuels of about 7 million barrels per day.
Risks: Illusion of a Glut?
Not all analysts share the pessimistic forecasts. Some experts point out that talk of a glut may be premature. Restoring production in the Gulf states will take weeks, while high transport costs and a shortage of insurance coverage limit supply.
Moreover, the fragility of the ceasefire persists: last week, the sides exchanged strikes after Iran attacked a commercial vessel with a drone. Iran insists on its right to control shipping in the strait and intends to impose transit fees from mid‑August.
The oil market now faces a fundamental choice. The peace agreement with Iran has returned millions of barrels to the market, but it remains unclear whether the global economy can absorb this volume amid weakening demand.
The coming months will show whether the current price decline marks the beginning of a new cycle of cheap oil or is merely a temporary correction before a new wave of geopolitical instability.
