Ten Reasons Why International Oil Prices Remain Below $100

More than 100 days after the outbreak of the Iran war, the largest oil supply shock in history has failed to push international crude prices above $100 per barrel.

According to Bloomberg columnist Javier Blas, oil prices have underperformed relative to most expectations—whether in financial or physical markets—with backwardation, physical premiums, freight rates, and refinery margins all declining. Before the conflict, approximately 20 million barrels per day of crude and refined products passed through the Strait of Hormuz, representing about one-fifth of global demand. In April, several hedge funds and Wall Street banks had forecast prices surging to $200 per barrel—a scenario starkly at odds with actual market developments.

Javier Blas argues that the convergence of the following ten forces is central to explaining this phenomenon. Among them, China’s influence is the most profound. Some factors are structural in nature—such as increased refinery flexibility and expansion of the options market—and will continue to constrain any oil price rebound. Others, like strategic reserve drawdowns and commercial inventory depletion, provide only temporary support and will eventually be exhausted.

Nevertheless, risks should not be underestimated. The U.S.-Iran ceasefire agreement remains fragile, with both sides continuing to exchange attacks recently. U.S. Strategic Petroleum Reserves have fallen to their lowest level in 40 years, and commercial inventories could approach critical thresholds around August.

Reason One: Slowing Chinese Imports

Data released by China’s General Administration of Customs show that crude imports in May declined by 29% year-on-year to approximately 33.1 million metric tons, equivalent to roughly 7.8 million barrels per day. According to market intelligence firm Vortexa, this represents a nearly 40% drop from the 2025 average, amounting to a reduction of about 4 million barrels per day.

Reason Two: Global Demand Destruction

Global refinery throughput has declined by approximately 5 million barrels per day. Of this, demand destruction—primarily concentrated in the petrochemical sector—accounts for an estimated 3 to 4 million barrels per day, with the remainder attributable to inventory drawdowns. This magnitude is substantial, especially considering that the rise in oil prices has been far below prior expectations.

Compared with consumers in the U.S. and Western Europe during previous supply shocks, Asian consumers appear to have responded more swiftly. The proliferation of electric vehicles may have enhanced consumption elasticity to some extent. Physical fuel shortages have also emerged in certain regions: cooking fuels such as butane and propane have run out across large parts of India, prompting a rapid shift toward alternative energy sources like coal and firewood across Asia.

Reason Three: Oil Is Still Flowing Through Hormuz

The blockade of the Strait of Hormuz has now lasted over 100 days, yet oil flows from the Persian Gulf have not been entirely cut off. Bypass pipelines traversing Saudi Arabia and the United Arab Emirates (UAE) continue to sustain an output of approximately 5 million barrels per day. Meanwhile, tankers from the UAE and Kuwait load cargoes at ports within the Persian Gulf, transit through the Strait, and proceed to anchorages beyond the bottleneck, where they transship their cargoes onto other vessels—these ships sail close to the Omani coast with their navigation lights switched off. What began as a trickle has now stabilized into a steady flow of roughly 2 million barrels per day.

Reason Four: Pre-existing Supply Glut

The war has obscured a critical underlying condition: prior to the outbreak of hostilities (February 27), the global oil market was already experiencing a significant supply surplus. During the seasonal demand trough of late winter and early spring, this oversupply likely ranged between 3 million and 4 million barrels per day. This glut—driven by the sustained impact of the U.S. shale revolution and previous substantial production increases by OPEC+—provided the market with a crucial buffer, buying time before the war’s shock could fully transmit to actual supply and demand dynamics.

Reason Five: The Largest-Ever Release from Strategic Reserves

Following Iraq’s invasion of Kuwait in 1990, wealthy nations waited six months before tapping their strategic petroleum reserves. This time, the United States prompted coordinated action among International Energy Agency (IEA) member countries within the first two weeks of the conflict. On March 11, the IEA’s 32 member states announced the release of 400 million barrels over the coming months—the largest coordinated drawdown since the agency’s inception. Deliveries from these reserves began accelerating in late April, with current release rates averaging around 2.5 million barrels per day.

However, the sustainability of this mechanism is questionable. As the largest contributor, the U.S. Strategic Petroleum Reserve has fallen to a 40-year low; the pace of commercial inventory drawdown is also concerning and may reach critical levels around August.

Reason Six: Significantly Enhanced Refinery Flexibility

Modern refineries are far more flexible today than they were just a few years ago, both in terms of feedstock processing and product output. Previously, refineries were relatively selective about crude grades; now, thanks to new units such as cokers, the range of processable crudes has expanded substantially. Refineries can also adjust, within certain limits, the output ratios of various refined products to meet demand for scarce grades. For example, jet fuel accounted for 10.5% of U.S. refinery output before the conflict; that share has now risen to nearly 13%, an all-time high.

Reason Seven: Trump’s Rhetorical Intervention

The Trump administration’s oil strategy appears to rely more on hope than concrete deployment, yet Trump himself has been notably active in using rhetoric to influence markets. Within 100 days, he signaled nearly 40 times via social media and media interviews that a negotiated settlement was imminent. For any trader betting on rising oil prices, such presidential statements represented a significant risk of forced liquidation—on several occasions following his posts, oil prices dropped by as much as 10%.

Notably, verbal intervention can only be effective with market cooperation: Wall Street not only was willing to believe Trump but actively chose to believe him.

Reason Eight: Buy Insurance, Not Oil

For decades, buying oil futures has been virtually the only means of hedging against geopolitical risks in the Middle East, with long positions often triggering a self-reinforcing price spiral. Options markets could have offered an alternative path—allowing traders to purchase price insurance without directly betting on rising oil prices—but historically suffered from severely limited liquidity.

Over the past decade, this situation has undergone a fundamental transformation. Taking Brent crude call options as an example, daily average trading volume stood at approximately 25,000 contracts in 2016 and has now reached 200,000 contracts, with recent peaks exceeding 550,000 contracts. This structural shift in the market has significantly weakened the self-reinforcing oil price spiral mechanism.

Reason Nine: The Fog of War Is Lifting

During the 1990–1991 Gulf War, the most significant innovation in market intelligence was little more than setting up a satellite dish to watch CNN’s grainy night-vision footage, making it difficult to distinguish facts from rumors. Today, commercial satellite imagery is widely available at reasonable prices, enabling traders to observe battlefield developments in near real time. Additionally, oil tanker tracking technology has improved substantially. As a result, today’s oil market operates primarily on information rather than emotion-driven speculation.

Reason Ten: High Oil Prices Are Stimulating Production Increases Elsewhere

Markets have focused excessively on production losses in the Persian Gulf while overlooking significant output gains elsewhere. The Americas are currently experiencing a production boom: combined output across the region is expected to increase by approximately 2 million barrels per day between Q2 2025 and Q2 2026. Preliminary data show Brazil’s output surging 20% year-over-year to a record high; both Guyana and the United States also set new all-time highs in April; Canada’s production remains robust, and Venezuela’s output is recovering.

Admittedly, these incremental gains represent only a fraction of the losses in the Middle East, but in a tightly balanced supply-demand market, every barrel counts.

Editor/melody