Page 39 - FIPI - Policy & Economic Report May 2026

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Oil Market

Crude oil price – Monthly Review

More than ten weeks after the war in the Middle East began, mounting supply losses from the Strait of
Hormuz are depleting global oil inventories at a record pace. Benchmark oil prices have posted wild swings
in response to conflicting signals on whether the United States and Iran will soon reach a deal to end the
conflict, with North Sea Dated plunging from a high of $144/bbl to below $100/bbl before rebounding
again. The two countries remained at loggerheads over an accord to reopen the Strait and end the war,
with North Sea Dated around $110/bbl. With Hormuz tanker traffic still restricted, cumulative supply
losses from Gulf producers already exceed 1 billion barrels with more than 14 mb/d of oil now shut in, an
unprecedented supply shock. The current supply-demand gap is significantly smaller, however, as the
market was already in surplus heading into the crisis while producers and consumers alike are responding
to market signals.

On the supply side, Saudi Arabia and the UAE have successfully redirected some exports to terminals
loading outside of the Strait. At the same time, stocks from commercial and government strategic storage
sites in consuming countries are flowing into markets to offset part of the losses. Observed global
inventories, including oil on water, were drawn down by 250 mb over March and April, or 4 mb/d.
Producers outside of the Middle East also pushed output higher and lifted exports to record levels in
response to the crisis. Indeed, 2026 supply growth expectations from the Americas have been revised up
by more than 600 kb/d since the start of the year, to 1.5 mb/d on average. Moreover, Atlantic Basin crude
oil exports, now heading primarily to hard-hit East of Suez markets, have increased by 3.5 mb/d since
February, with notable gains from the United States, Brazil, Canada, Kazakhstan and Venezuela. Russia’s
crude oil exports have also risen, as repeated attacks on its refineries have cut domestic use and led to
higher shipments, while the United States temporarily waived sanctions on Russian oil on water.

On the demand side, refiners have reduced runs and sharply scaled back crude imports. Chinese seaborne
crude imports fell by a massive 3.6 mb/d from February to April, according to Kpler. Major reductions in
imports were also seen in Japan (-1.9 mb/d), Korea (-1 mb/d) and India (-760 kb/d). But while the
slowdown in global refinery activity – by around 5 mb/d y-o-y in April – has temporarily eased tensions in
the crude market, tightness is quickly spreading to product markets.

Hedge funds and other money managers maintained a broadly bullish stance toward crude oil markets,
although net long positions declined over April, mainly in ICE Brent. Speculators reduced their exposure
by selling the equivalent of 42 mb across ICE Brent and NYMEX WTI futures and options, resulting in a
7.8% decline in total net long positions. The adjustment in positioning followed a peak in bullish sentiment
observed in mid-March. Mixed geopolitical signals in the Middle East and evolving expectations regarding
potential de-escalation prompted profit-taking from previously accumulated long positions. Despite these
adjustments, overall speculative positioning across crude markets remained relatively elevated, indicating
that market participants continued to anticipate tight market fundamentals amid persistent geopolitical
uncertainties.

Crude spot prices were mixed and remained highly volatile over April. Light sweet benchmarks Brent and
WTI averaged higher, m-o-m, in April, while medium sour benchmark Dubai averaged lower during the
same period. Light sweet benchmarks rose sharply early in the month amid firm demand for available
barrels in the spot market and supply disruption in the Middle East, while refiners tend to increase
throughputs ahead of the start of the holiday driving season. Strong demand was particularly evident in

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