WTI Crude Oil Plunges 15% in Q2: How the Hormuz Stalemate and Oversupply Are Double Pressuring Oil Prices?

In the second quarter of 2026, the global crude oil market went through a violent rollercoaster. WTI crude oil futures fell nearly 15% cumulatively in the second quarter, with June alone dropping more than 18%; Brent crude oil futures fell more than 19% cumulatively in the second quarter, tumbling 21% in June and posting the largest single-month decline since the COVID-19 shock in March 2020. As of July 1, 2026, WTI crude oil futures were at $69.50 per barrel, and Brent crude oil futures at $72.92 per barrel.

Behind this decline was the combined effect of the rapid unwinding of geopolitical risk premia and the repricing of supply-and-demand fundamentals. From the Strait of Hormuz going from lockdown to reopening, to the US and Iran moving from military standoff to signing a memorandum of understanding, to OPEC+ continuing to increase production alongside downward revisions to global demand expectations—these multiple factors interwove to form a complete narrative framework for the oil price trajectory in the second quarter.

Why did the geopolitical risk premium concentrate and unwind in the second quarter?

In the first half of 2026, the crude oil market’s pricing logic underwent a dramatic switch—from “geopolitical dominance” to “a return to supply-and-demand fundamentals.”

After the Middle East conflict erupted at the end of February, the Strait of Hormuz was at one point effectively in a blockade. The paralysis of this most important global energy chokepoint—through which about 17 million barrels of crude oil pass daily, accounting for nearly one-third of global seaborne oil trade—once pushed Brent crude to nearly $120 per barrel. At the time, the market paid a geopolitical risk premium of up to $10–20 per barrel for supply-chain disruptions.

However, once the second quarter began, this premium started to clear rapidly. On June 17, the US and Iran released the official text of a memorandum of understanding, pledging to hold negotiations within 60 days and reach a final agreement. On June 23, the Strait of Hormuz was fully reopened to global merchant vessels for 60 days, during which no transit fees would be charged. The U.S. Treasury simultaneously issued oil export exemption permits, and the $12 billion in Iran’s frozen overseas assets began to be released in batches.

The market quickly interpreted these developments as signals that supply would return. The risk premium previously generated by geopolitical conflict was almost entirely wiped out within weeks. Some institutions explicitly pointed out that the core logic of trading in the crude oil market had shifted from near-term supply shortages to expectations of oversupply in the future. While geopolitical turmoil repeating again and again could still deliver pulse-like risk premia, it was no longer able to reverse the major trend of restructuring the supply-and-demand balance.

Why couldn’t the Strait of Hormuz stalemate support oil prices?

In the second quarter, the Strait of Hormuz transit situation repeatedly went through a cycle of “blockade—reopening—new conflict—further negotiations,” but each time geopolitical escalation provided a weaker boost to oil prices than the last.

On June 25, the United States and the Gulf Cooperation Council issued a joint statement opposing any action to impose transit fees on the Strait of Hormuz or attempt to control it. Iran responded forcefully, with the Navy of the Islamic Revolutionary Guard warning that passage through the Strait of Hormuz was only permitted via routes announced by Iran, and that vessels violating this would be “dealt with.” On June 26, the United States accused Iran of attacking a cargo ship flying the Singapore flag, then launched strikes on Iranian military facilities, kicking off a new round of US-Iran military strikes. On June 27 and June 28, the United States carried out airstrikes targeting areas along Iran’s southern coast for two consecutive days.

Yet this series of conflict escalations did not push oil prices back to high levels. Market reaction showed a clear “dulling” effect—each geopolitical shock produced a smaller price rise and faded faster than the previous one. Some analysis attributed this to “diminishing efficiency of geopolitical premia”—the market has learned to find a new balance point between the two opposing narratives of “supply recovery” and “geopolitical risk.”

The deeper reason is that the market already had ample expectations of a buffer for any disruption in supply at the Strait of Hormuz. During the blockade, oil prices did not spiral out of control not because the shock was small, but because inventory releases, pipeline diversions, increased output from remaining spare capacity, higher U.S. exports, and adjustments to flows from non-Strait-of-Hormuz sources together cushioned the impact of constrained crude oil outflows. The resilience of the global energy supply chain exceeded what the market had previously expected.

Why did US-Iran negotiations shift from “a tailwind” to “a headwind”?

The evolution of US-Iran relations was the most dramatic variable in the oil price trend in the second quarter. Initially, the market viewed US-Iran negotiations as a potential headwind—if an agreement was reached, Iranian oil would return to the market and supply would increase. But as the negotiations progressed, this logic was reinforced repeatedly, eventually evolving into a systemic force that kept suppressing oil prices.

In the memorandum of understanding official text announced on June 17, the U.S. committed to terminating various sanctions against Iran according to a timetable to be determined under the final agreement, allowing exports of Iranian crude oil, petroleum products, and derivatives, as well as all supporting services including banking transactions, insurance, and shipping. Subsequent announcements by the U.S. Treasury showed that the exemptions covered not only the production, delivery, and sales of Iranian crude oil, petrochemicals, and petroleum products, but also included allowing imports of Iranian crude oil into the United States.

This meant the path for Iranian oil returning to the global market became clear. Under this expectation, Wall Street institutions collectively cut their oil price forecasts. Goldman Sachs lowered its 2026 fourth-quarter Brent crude oil price forecast from $90 per barrel to $80 per barrel. Morgan Stanley lowered its oil price forecast twice within a little more than two weeks.

More notably, the foundation of trust between the US and Iran is extremely fragile. Less than a week after the memorandum was signed, military conflict broke out again between the two sides over the Strait of Hormuz transit issue. Although both sides subsequently agreed to stop hostilities and restart negotiations, this “fighting while talking” pattern further reinforced how the market prices the uncertainty of agreement implementation. In the market narrative, this uncertainty was reflected more as a disruption to the pace of supply returning, rather than as concern about supply disruption itself.

How did expectations of global oil oversupply form?

If geopolitical factors were the “catalyst” for the oil price decline in the second quarter, then a deterioration in supply-and-demand fundamentals was the deeper “structural force.”

On the supply side, OPEC+ kept increasing production in the second quarter. Since April 2026, the group has cumulatively raised production quota by nearly 600,000 barrels per day. In June, OPEC+ agreed to raise its oil production target for July by another 188,000 barrels per day, marking four straight months of increasing the output targets. Some analysis pointed out that while the meaning of OPEC+’s production increases was limited as the Strait of Hormuz remained closed, once the strait reopened, the market could quickly shift from worrying about supply shortages to fearing oversupply. This assessment was validated toward the end of the second quarter. As the strait reopened, at least 20 tankers carrying a total of 35 million barrels of crude oil departed the strait, and Persian Gulf oil-producing countries were rapidly restoring idled capacity.

On the demand side, the outlook was also unfavorable. In its June report, the International Energy Agency (IEA) expected that global oil demand in 2026 would decline by 1.1 million barrels per day year over year, revising down sharply by 700,000 barrels per day versus the May forecast. The EIA expected that consumption of oil and other liquid fuels in 2026 would decrease by 1.09 million barrels per day year over year. The IEA noted that the main reason for the sharp drop in demand was the second-quarter impact of high oil prices and disruptions to product supply, driving a year-on-year plunge of 5 million barrels per day.

Even longer-term structural pressure continued to build. The IEA estimated that by the end of 2026, the global oil market could turn back to oversupply. In 2027, supply could rebound sharply to 110.3 million barrels per day, while demand would be only 105.3 million barrels per day, creating a potential oversupply of about 5 million barrels per day. Goldman Sachs also warned that the daily crude oil oversupply could exceed 3 million barrels.

The simultaneous worsening on both the supply and demand sides formed a complete fundamental narrative for the second-quarter oil price decline.

Why did market trading logic shift from “fear of shortage” to “pricing oversupply”?

The most profound change in the second-quarter crude oil market was not the price itself, but a fundamental shift in the market’s trading logic.

From the beginning of the year to April, the core market narrative was “supply shortage”—the Strait of Hormuz blockade, escalation of conflict in the Middle East, and risks of global supply chain disruption drove oil prices higher persistently. After May, as progress was made in US-Iran negotiations, the market began to price in the return of supply in advance. After the memorandum was signed in June, this trend accelerated further, and market concerns shifted from shortage to oversupply.

This logic shift was clearly reflected in the price structure. WTI crude oil continued to fall from the high range in the first quarter to around $70 per barrel, with the geopolitical premium essentially close to zero. Some institutions believed that most of the geopolitical risk premium had already dissipated and that oil prices had returned to a track dominated by supply-and-demand fundamentals.

It is worth noting that this round of declines was not simply “good news fully priced out of the market.” Rather, it was the market’s reassessment of the medium-term supply-and-demand landscape. Market participants were no longer focused only on immediate supply disruptions; they began forward-looking pricing of expectations for the 2026 exit from OPEC+ production cuts and growth in non-OPEC+ supply. The current supply-and-demand balance sheet still indicated oversupply, and the downward pressure on oil prices could persist throughout the year.

What key variables will oil prices face in the third quarter?

Entering the third quarter, crude oil market pricing will revolve around several core variables.

First is the transit status of the Strait of Hormuz. Although the US and Iran have agreed to stop the fighting and restart negotiations, in practice the strait is forming a “dual rule.” Iran requires all vessels to report to the Navy of the Islamic Revolutionary Guard and follow designated routes, while the United States continues to emphasize escorting and alternative routes. For merchant vessels transiting the past, the biggest risk is precisely the coexistence of multiple rules, inconsistent standards, and conflicts among enforcement authorities. If another serious incident involving an attack on a merchant vessel occurs in the strait, oil prices could gain temporary support.

Second is progress in the US-Iran 60-day negotiations. The memorandum proposed a 60-day timeline for final agreement negotiations, extendable by mutual consent. However, at present the two sides have not yet entered substantive consultations on the most critical nuclear issue. The biggest external variable is Israel. A ceasefire between Israel and Hezbollah is the first litmus test for the agreement to land. Once fighting in southern Lebanon reignites, Iran could restart a blockade of the strait at any time, and the de-escalation process could be interrupted at any moment.

Third is the recovery rhythm on the demand side. The IEA expects that in the third quarter oil demand may decline by 1.7 million barrels per day year over year, but in the fourth quarter it could recover to year-on-year growth of 1.1 million barrels per day. If demand recovery is faster than expected, it may offset—at least to some extent—the pressure from oversupply.

Fourth is OPEC+ production policy. At current price levels, whether OPEC+ continues to maintain the pace of increased production will directly affect the market’s judgment on the supply-and-demand balance.

Summary

In the second quarter of 2026, WTI crude oil fell cumulatively by nearly 15%, while Brent crude oil dropped more than 19%, with both posting the largest quarterly declines since the pandemic. The drivers behind this decline were not a single factor, but the combined resonance of multiple pressures, including the unwinding of geopolitical risk premia, expectations of a return of Iranian oil, OPEC+ ongoing production increases, and weak global demand.

From the Strait of Hormuz moving from blockade to reopening, and from US-Iran military standoff to signing the memorandum of understanding, the market’s pricing of geopolitical risk went through a complete cycle—from “panic premium” to “premium liquidation.” At the same time, the IEA and EIA sharply lowered their global oil demand forecasts, OPEC+ kept increasing production, and the global oil market shifted its trading logic from “fear of supply shortage” to “expectations of oversupply.”

Looking ahead to the third quarter, the transit status of the Strait of Hormuz, progress in the US-Iran 60-day negotiations, the rhythm of global demand recovery, and OPEC+’s production policy will be the core variables that determine the direction of oil prices. The market’s currently priced baseline scenario assumes supply gradually returns and demand recovers moderately. However, the high degree of geopolitical uncertainty means that any directionally unexpected event could trigger a major repricing of prices.

FAQ

Q1: How much exactly did WTI crude oil fall in the second quarter?

As of July 1, 2026, WTI crude oil futures fell nearly 15% cumulatively in the second quarter, with June alone dropping more than 18%. Brent crude oil futures fell more than 19% cumulatively in the second quarter, plunging 21% in June.

Q2: Why didn’t conflict in the Strait of Hormuz push oil prices higher?

The market already had ample expectations of a buffer for disruptions to supply at the Strait of Hormuz—inventory releases, pipeline diversions, increased output from remaining spare capacity, higher US exports, and adjustments to flows from non-Hormuz sources together buffered the impact of constrained crude oil outflows. Meanwhile, after the US and Iran reached a memorandum of understanding, the market priced more in the expectation of increased supply from the return of Iranian oil rather than the risk of supply disruption from near-term conflict.

Q3: Where do expectations of global oil oversupply come from?

On the supply side, OPEC+ has cumulatively increased production quota by nearly 600,000 barrels per day since April; on the demand side, the IEA expects global oil demand in 2026 to decline by 1.1 million barrels per day year over year. The IEA further predicts that global oil supply in 2027 could reach 110.3 million barrels per day, while demand would be only 105.3 million barrels per day—creating a potential oversupply of about 5 million barrels per day.

Q4: Does US-Iran negotiation affect oil prices as a headwind or a tailwind?

In the short term, it is a headwind. The US-Iran memorandum of understanding allows Iranian crude oil and petroleum products exports and covers the full chain of supporting services such as banking, transportation, and insurance. The market will interpret this as a prelude to a large-scale return of Iranian oil, intensifying concerns about oversupply. However, the negotiations themselves involve high uncertainty, and any back-and-forth could trigger a temporary rebound in oil prices.

Q5: Does Gate support trading oil-related assets?

Gate has launched real US stock trading and supports trading in more than 10,000+ US stock symbols, including energy-sector listed company stocks and ETF products that are highly related to oil prices. Investors can participate conveniently in investing and risk management in the energy market through the Gate platform.