Page 36 - Policy Economic Report- June'26

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Oil Market

Crude oil price – Monthly Review

An interim agreement between the United States and Iran aimed at ending the conflict in the Middle East
could facilitate the reopening of the Strait of Hormuz and the removal of the U.S. blockade on Iranian oil
exports. This marks the most significant breakthrough in negotiations since the onset of the conflict and
has prompted a sharp decline in oil prices, which have fallen to their lowest levels since early March. Oil
prices had already retreated from recent highs as market concerns eased, supported by a surge in Gulf
exports at the beginning of June, accelerated strategic stock releases by the International Energy Agency
(IEA), and weaker global demand. ICE Brent crude futures were trading at approximately US$81 per barrel,
representing a decline of US$37 per barrel from the peak recorded in early April, although prices remained
around US$20 per barrel higher than at the beginning of the year.

Provided the agreement remains in force, oil production and exports from the Gulf are expected to
recover gradually, particularly as Iranian crude exports are likely to resume in full following the lifting of
the U.S. blockade. Shipments through the Strait of Hormuz had already increased significantly in early
June, aided by ship-to-ship transfers in the Gulf of Oman, with total crude flows rising from a low of 9.6
million barrels per day (mb/d) in May to approximately 12 million barrels per day. Nevertheless, a full
recovery is unlikely to be immediate. Maritime mines will need to be cleared from the principal shipping
lanes, and regional supply chains will require time to return to normal operating conditions.

Overall, global oil supply is expected to fall by 3.9 mb/d on average in 2026 to 102.4 mb/d. Gulf supply
losses will be partly offset by continued gains from non-OPEC+ producers. Robust growth from the
Americas, along with steep US SPR releases, boosted Atlantic Basin crude exports to markets East of Suez
since the start of the war by 3.5 mb/d. At the same time, crude imports into China and Japan, in particular,
have declined sharply, with each falling by around 40% – or nearly 6 mb/d combined. Lower refinery crude
runs in China, the Middle East, Eurasia and elsewhere in Asia, down by more than 5 mb/d y-o-y in 2Q26,
transmitted this supply shock into product markets. Despite the significant reductions in demand for crude
oil and refined products, the buffers in the system continue to erode at a record pace. Global observed oil
stocks have declined by 3.8 mb/d on average since the start of the war, with a sizeable draw of 143 mb (-
4.6 mb/d) in May, according to preliminary data. Further declines in the coming months could still take
global oil stocks to historic lows before the market balance shifts to surplus towards the end of the year.

Hedge funds and other money managers cut their bullish positions in May in both Brent and WTI futures
contracts, betting on easing geopolitical tensions in the Middle East and improving supply conditions.
Speculators sold the equivalent of about 122 mb of oil in May, cutting their combined options and futures
net long positions by 25% in ICE Brent, NYMEX WTI and ICE WTI contracts. Money managers also cut their
net long positions in WTI in May. NYMEX and ICE WTI net long positions dropped by 17,335 lots, or 16.0%,
between the weeks of 28 April and 26 May, to 91,163 contracts, according to the US Commodity Futures
Trading Commission (CFTC). The decrease in net long positions was driven by a decline in long positions
of 24,377 lots, or 10.5%, to 208,014 contracts. During the same period, short positions fell by 7,042 lots,
or 5.7%, to 116,851 contracts.

Crude spot prices declined in May amid expectations of improving prompt supply availability and softer
refinery demand, particularly in Asia, where persistent refinery constraints weighed on spot market
buying activity. Global refinery intake levels were nearly 7 mb/d below those observed in January and

June 2026 Page | 35