Oil prices suffer 'worst quarter since pandemic', 'war premium' nearly zero, analysts believe 'global restocking' will bring next round of gains

The crude oil market experienced a violent roller-coaster ride in the first half of 2026: first, a supply panic triggered by the blockade of the Strait of Hormuz sent oil prices soaring, followed by a sharp decline as multiple buffer mechanisms took effect. Brent crude fell 38% in the second quarter, its largest quarterly drop since the COVID-19 pandemic began in 2020.

As of the close on June 30, Brent crude settled at $72.92 per barrel, and WTI crude at $69.50, both largely back to levels before the Iran conflict broke out. Warren Patterson, Head of Commodities Strategy at ING, pointed out that at around $70 per barrel, the oil market's current pricing contains "almost no geopolitical risk premium," and the market is effectively pricing the temporary US-Iran ceasefire as a permanent agreement.

The core driver of the rapid price decline was a repricing of supply risks. In June, the US-Iran ceasefire continued, more ships passed through the Strait of Hormuz, multiple economies used emergency reserves, and alternative transport routes began to function. At the same time, US energy exports increased, and Chinese import volumes remained stable, jointly providing a buffer for the market.

However, many analysts believe this downturn may not last long. As the International Energy Agency (IEA) plans to replenish the 400 million barrels of reserves released during the crisis, and major importers like India are actively expanding their strategic petroleum reserves, a wave of new demand driven by "global restocking" is brewing, which could provide the next upward support for oil prices.

First Half: From "Epic Supply Crisis" to "Worst Quarter Since the Pandemic"

In the first quarter of 2026, after the US and Israel launched strikes on Iran, Iran immediately closed the Strait of Hormuz, plunging the global crude oil market into panic. Brent crude recorded its largest quarterly gain since Q2 2020. However, the situation took a sharp turn in the second quarter.

This reversal is closely linked to the Middle East situation. Initially, the market feared disruptions to Persian Gulf supply, and the Strait of Hormuz, a critical chokepoint, could amplify supply risks. Oil prices once included a significant war premium. But after June, the continuation of the ceasefire, the resumption of navigation, and the release of reserves weakened the supply shock, and Brent prices quickly fell back to near pre-conflict levels.

Some spot indicators also show that the price impact of the war has largely been erased. Spot Brent crude has fully unwound the war impact. This means the near-term market is no longer willing to pay a high premium for immediate geopolitical risks. Morgan Stanley has lowered its Q4 2026 Brent forecast from $80 to $75 per barrel.

Kuptsikevich warned that if the Middle East conflict escalates further, oil prices could rise again; if the conflict does not escalate, the long-term outlook for Brent is weak, especially as Middle East production recovers and Iranian production could rise to 3.3 million barrels per day by year-end.

War Premium at Zero: Why Oil Prices Are "Immune" to Geopolitical Shocks

The key reason oil prices did not keep surging during the conflict is that the market found a series of ways to cope with supply bottlenecks.

Multiple factors combined to lower oil prices: producers such as the US, Venezuela, and Iraq accelerated output increases; Saudi Arabia's pipeline throughput reached a record high; the UAE accelerated pipeline expansion projects bypassing the Strait of Hormuz; meanwhile, demand-side adjustments occurred in parts of Asia, including flight cancellations, energy rationing, and import tariff hikes.

Emergency reserves also played an important role. Several countries tapped their reserves to offset the impact of supply disruptions from the Persian Gulf. The release of inventories provided additional buffer to the spot market and prevented prices from rising further in short-term panic.

Edward Meir, an analyst at financial services platform Marex, told MarketWatch: "Whenever there is a supply bottleneck, the market always finds a way around it." He noted that the combined effect of these factors explains the sharp correction in oil prices and predicted that prices would soon fully return to pre-conflict levels. FxPro's Chief Market Analyst Alex Kuptsikevich said, "The market has adapted to one of the most far-reaching crises in the history of the crude oil market."

US and China Act as "Shock Absorbers," Changing Geopolitical Pricing Logic

Samantha Dart, Co-Head of Commodities Research at Goldman Sachs, believes that the market's muted reaction to geopolitical "sparks" does not mean the risks have disappeared, but rather that global energy flows provide a stronger buffer.

On the supply side, US energy exports continue to grow, providing more liquidity to the global market. On the demand side, China's crude oil import volumes remain relatively stable, forming an important demand base. The increase in US exports and the stability of Chinese imports together constitute a "two-way buffer" for the crude oil market.

This structure reduces the market's sensitivity to single geopolitical events. In other words, while the situation in the Strait of Hormuz remains a risk point, local disturbances are no longer sufficient to easily rewrite the global crude supply-demand balance. Investors are beginning to focus more on actual flows, inventory changes, and alternative routes, rather than simply chasing geopolitical headlines.

Restocking: A Potential Engine for the Next Oil Price Rally

After the war premium receded, the market turned its attention to another variable: global strategic inventory replenishment.

According to OilPrice.com, the Middle East conflict disrupted a total of over 1 billion barrels of supply. The large strategic stockpiles built earlier helped the market absorb the shock and prevented oil prices from spiraling further out of control. But once these inventories are depleted, they need to be replenished after the crisis ends.

The IEA previously said it released 400 million barrels of emergency crude reserves to cope with supply disruptions. This volume is higher than the 182 million barrels released by member countries in 2022. Whether after the crisis ends or during its continuation, released or prepared reserves will eventually need to be replenished.

Restocking demand does not only come from IEA member countries. India is also considering expanding its own oil reserves, which currently cover only 8 days of import demand. The Indian government has asked state-owned ONGC to increase crude reserves by 13 million barrels, but establishing a more sufficient buffer could require hundreds of billions of dollars in funding.

This means that once the market confirms a true easing of the Middle East crisis, crude oil demand could see a new wave of policy-driven buying. The priority of energy security has risen in various countries, and strategic reserve construction and replenishment will become a potential support for oil prices.

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