The outlook for oil is balanced on a knife’s edge

The oil market is finely balanced between resilient supply buffers and the risk of worsening disruption if the Iran war continues.

• WTI has risen more than 30% since hostilities began in February, but remains below its early-April peak.
• Commercial and strategic reserves, excess production outside the Persian Gulf and China’s pre-war inventory replenishment have cushioned the market; Iranian and Russian tankers in the “dark fleet” collectively carried more than 400 million barrels.
• These buffers are declining: European and German natural-gas reserves are at historic seasonal lows, while the US Strategic Petroleum Reserve is at a 40-year low.
• New supply routes could reduce the Strait of Hormuz risk: a Syrian land route is already moving thousands of truckloads, a pipeline is planned, and Treasury Secretary Bessent says future pipelines could carry more than half of current Hormuz volumes.
• China’s declining reserves may encourage it to support diplomacy, while new deals between Venezuela and private oil companies could increase production in coming years.

Takeaway: Geopolitical uncertainty creates both downside risk and a potential entry point in oil and gas, particularly for companies with geographically diversified assets and the firms that serve them, although the outlook remains highly dependent on diplomacy and the war’s evolution.