Oil prices remain heavily driven by escalating geopolitical tensions in the Middle East. After surging at the onset of conflict, Brent and WTI prices fell sharply in May - down 17 per cent and 19 per cent respectively - amid tentative diplomatic signals. However, renewed military actions involving the United States, Iran, and Israel quickly reversed this trend, pushing prices back above USD 90 per barrel. Further upside risk stems from threats to key shipping chokepoints, particularly the Strait of Hormuz and the Bab el-Mandeb Strait, with Iran and its allies reportedly considering disruptions. While some forecasts suggest prices could spike to USD 180 per barrel under worst-case escalation, others expect moderation if ceasefires materialize.
On the supply side, normalization appears increasingly unlikely. Persistent risks include naval mines in the Strait of Hormuz, tanker attacks, and reluctance from shipowners and insurers to operate in the region. These factors continue to constrain global flows and delay recovery of export volumes.
Demand outlooks are weakening amid high prices and economic pressure. Analysts estimate demand destruction of around 2 Mn bpd in May, driven by reduced consumption in China and Europe. Forecasts indicate further downside risks, with China’s imports potentially falling to pandemic-era lows, while inflationary pressures in India also threaten consumption growth.
Downstream, refining margins are expected to remain elevated due to tight product markets. Disruptions to refining capacity and declining exports have tightened supply, with margins projected to stay well above historical averages through 2026, particularly for diesel.