Page 28 - Policy Economic Report - March 2026

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Oil Market

Crude oil price – Monthly Review

The global oil market is contending with the ramifications of the war in the Middle East. Beyond the
direct damage to energy infrastructure in the region, the crisis has led to a near halt in tanker
movements through the Strait of Hormuz. With nearly 20 mb/d of crude and product exports currently
disrupted and limited alternative options to bypass the world’s most critical oil transit chokepoint,
producers and consumers globally are feeling the strain. Benchmark crude oil prices have surged by
$20/bbl to $92/bbl since the outbreak of hostilities on 28 February, with even bigger increases across
product markets. With few ships currently able or willing to load cargoes at port, and domestic storage
tanks filling up, producers in the region are reducing or shutting in production. While the situation on
the ground is fast evolving and at times opaque, we estimate that crude production is currently being
curtailed by at least 8 mb/d, with a further 2 mb/d of condensates and NGLs shut in. Major supply
reductions are seen in Iraq, Qatar, Kuwait, the UAE and Saudi Arabia.

Disruptions are not limited to upstream production and exports, with several refineries and gas
processing facilities shut down due to attacks or for safety concerns. The closure of the Strait is also
forcing export-oriented refineries to cut runs or shut completely as product storage tanks top up, with
more than 4 mb/d of refining capacity at risk. Gulf producers exported roughly 3.3 mb/d of refined
products, and 1.5 mb/d of LPG in 2025. While additional throughputs in other regions are possible,
feedstock availability will be a limiting factor. This has prompted some countries to implement product
exports restrictions. Diesel and jet fuel markets look to be particularly vulnerable to an extended loss of
Middle East production and exports, given limited flexibility elsewhere to increase output.

Meanwhile, the suspension of flights at major airports in the Middle East, with a knock-on effect on
hubs elsewhere, has materially reduced global jet fuel demand. Plunging LPG and naphtha supplies are
already forcing petrochemical plants to curb their production of polymers, aggravating the loss of Gulf
petrochemical flows. LPG use in cooking and heating, especially in India and East Africa, is also at risk.
More broadly, higher oil prices and a deteriorating economic outlook have begun to erode demand
across the product spectrum. In this context, we have reduced the forecast for global oil demand growth
in March and April by more than 1 mb/d on average – and for 2026 as a whole by 210 kb/d to 640 kb/d.

Consumer countries have significant amounts of oil in storage to bridge temporary supply losses. Global
observed inventories of crude and products are currently assessed at more than 8.2 billion barrels, the
highest level since February 2021. Roughly half of these are held in OECD countries, of which 1.25 billion
barrels by governments for emergency purposes, with a further 600 million barrels of industry stocks
held under government obligation. The co-ordinated emergency stock release provides a significant and
welcome buffer, but in the absence of a swift resolution to the conflict, it remains a stop-gap measure.
The ultimate impact on oil and gas markets and the broader economy from the conflict will depend not
only on the intensity of military attacks and any damage to energy assets, but also, crucially, on the
duration of disruptions to shipping through the Strait of Hormuz. Adequate insurance mechanisms and
physical protection for shipping are key to the resumption of flows, which is of paramount importance
for the oil market.

Hedge funds and other money managers turned increasingly bullish over February, boosting their net
long positions, with total net length rising by 46%, m-o-m. The increase was more pronounced in ICE
Brent, where net long positions reached their highest level since April 2024. The expansion in net long

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