Oil prices fell on July 9, with West Texas Intermediate (WTI) dropping 1.2% to $72.64 and Brent sliding 1.3% to $76.99, as the market weighed the impact of a second night of US strikes on Iran.
The US strikes on Iran have created a tug-of-war between the geopolitical premium and the structural glut in the oil market. On one hand, the conflict has raised fears about the potential disruption to oil flows, particularly through the Strait of Hormuz, which carries roughly 20% of the world’s crude oil. On the other hand, the market is also aware of the growing supply of oil from OPEC+ and non-OPEC producers, which is expected to continue in the coming months.
The geopolitical force sets the ceiling for oil prices because it is the only factor that can drive a sharp rally in an oversupplied market. Without the conflict, oil prices would likely be trading in the low $60s, based on fundamental factors alone.
The fundamental force sets the floor for oil prices because the supply wave is real, persistent, and growing. OPEC+ has agreed to raise its output targets, and non-OPEC producers such as the US, Brazil, and Guyana are also increasing their production.
The demand for oil is contracting, which means that the market is facing a double bind of rising supply and falling demand.
The key issue for the oil market is how much the Strait of Hormuz is being disrupted. The strait carries roughly 20 million barrels of oil per day, and any disruption to oil flows through the strait could have a significant impact on the global oil supply.
However, the market is currently pricing in disruption, not closure. The actual disruption to oil flows has been limited, with vessel tracking data showing that most tankers are still moving through the strait.
The critical distinction for the forecast is between disruption and closure. Disruption supports a modest war premium of perhaps $5 to $10 over fundamental fair value, while a genuine closure would be a different event entirely, spiking prices $20 to $40 as 20 million barrels per day of supply gets threatened.
The conflict between the US and Iran has raised concerns about the stability of the global oil supply and has created a risk of a supply shock. They have bombed more than 80 targets in Iran and Iran has retaliated against 85 US military sites across Bahrain and Kuwait.
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The specific threats to the oil market are real, with the US warning that future strikes may target Iran’s key export terminal on Kharg Island.
The structural force pulling oil prices lower is the growing supply of oil from OPEC+ and non-OPEC producers. OPEC+ has agreed to raise its output targets, which will add to the growing supply of oil in the market.
The non-OPEC supply wave is also building, with rising output from the US, Brazil, and Guyana. The demand side of the shale equation sets a rough floor for oil prices. The $65 marginal cost of US shale is the level at which shale drilling slows, and supply growth stalls.
The EIA forecasts that global oil consumption will decrease by an average of 1.2 million barrels per day in 2026, with 0.8 million of that decline coming from non-OECD countries. The demand for oil is contracting, particularly in non-OECD countries, which are the main drivers of global oil demand growth.
The EIA forecasts that global oil consumption will increase by 2.0 million barrels per day in 2027, as deferred consumption returns and lower prices stimulate use. The demand contraction is the piece that turns a supply glut into a genuine surplus.
Rising supply into flat demand is bearish, while rising supply into falling demand is acutely bearish. The war can mask this by stranding supply, but it cannot manufacture demand. The official US government forecast lays out the bearish base case in specifics, and it points steadily lower.
The EIA forecasts that Brent will average $74 in the third quarter of 2026 and $65 in 2027. The agency expects global oil inventories to fall by an average of 5.1 million barrels per day in the second quarter and to build by 2.7 million barrels per day in the fourth quarter.
The inventory math underpins the forecast. The EIA estimates that the market will return to its pre-conflict state of oversupply after the adjustment period, with inventories building by 5.0 million barrels per day in 2027.
Goldman Sachs has provided a useful analytical framing of the current oil market, which threads the needle between the bulls and bears. The bank projects a sizable 2027 surplus of oil, but it does not expect a price crash despite the glut.
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The distinction is subtle and important. Goldman’s argument is that a real surplus and a price crash are not the same event when storage is already drained and buyers are still flinching at the memory of high crude prices. The war has depleted global inventories, so even as the surplus builds, the market has to refill emptied storage before prices can collapse.
Goldman’s scenarios define the bracket, with an upside case where the Strait of Hormuz never fully reopens and a downside case with a faster reopening and stickier demand losses. The bank sees Brent topping $130 by year-end in the upside case and slipping below $60 in 2027 in the downside case.
The $60-to-$130 range captures the entire tug-of-war between the war premium and the glut. The timeline of 2026 tells the whole story of whiplash in the oil market.
The conflict began on February 28, when US and Israeli airstrikes hit Iran, effectively closing the Strait of Hormuz. The war premium drove oil prices to high levels, but the market has since swung from high to low and back toward high, entirely driven by the oscillation between the war premium and the glut.
The analyst targets capture the enormous uncertainty in the oil market, spanning from the low $60s to $130. The forecast community’s targets reflect the war-versus-glut standoff, with the bearish end dominated by fundamentals-focused forecasts and the bullish scenarios all hinging on the war.
WTI at $72.64 and Brent at $76.99 have both rallied off the five-month lows near $69 WTI and $72 Brent, but they trade far below their 50-day moving averages of $87.20 for WTI and $92.48 for Brent.
The near-term levels define the battle zone, with the fundamental floor sitting around $65 for WTI and the war-premium ceiling depending on the Strait of Hormuz. The $72 to $73 WTI area where crude trades now is the equilibrium between these forces, and the market is waiting to see which force will dominate in the coming weeks.
Oil prices are influenced by various factors, including oil supply and demand.
