Oil market watchers entered 2026 widely in agreement on an emerging multibillion-barrel glut that was sure to depress prices throughout the year. That is not what they received.
Instead, a series of unexpected geopolitical catalysts — above all, the war in Iran — pushed oil prices to levels not seen since 2022, creating the largest energy supply shock on record and forcing traders to set aside all expectations for the first half of the year.
Now, with Persian Gulf oil exports renormalizing as the war in Iran seemingly winds down, traders enter the second half of the year in an uneasy calm after the storm.
“Despite the daily noise, markets feel remarkably calm, but comfort is not the same as clarity,” Macquarie commodities strategists, led by Peter Taylor, wrote to clients.
“H2-26 may prove calmer, but we have set the scene for surprises.”
‘Cartoonishly oversupplied’
Coming into 2026, Brent (BZ=F) futures, the international crude oil benchmark, were trading at $60 per barrel; those on US benchmark WTI crude (CL=F) were trading near $57. Just two weeks earlier, in the middle of December, prices on both contracts had fallen to levels not seen since 2021.
Through the back half of 2025, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) unwound production cuts at a significant rate, increasing the amount of barrels added to the market each month, while other supplier countries outside of the Americas raised their own outputs. Sea-bound oil volumes crossed 1 billion barrels.
Read more: You can trade oil futures. What to know before you start.
Taken together, the International Energy Agency estimated that the oil market would be oversupplied by nearly 4 million barrels per day in 2026, with prices expected to end the year lower than they started.
“At the risk of flogging a very dead horse, our message to the market has remained consistent since June 2023,” JPMorgan strategists wrote in a note to clients in December. “While demand is robust, supply is simply too abundant.”
The oil market, Macquarie analysts wrote at the time, was “cartoonishly oversupplied.”
The first hints that 2026 may not shake out as expected arrived in the early hours of Jan. 3, as news broke that US commandos had forcibly extracted Venezuelan President Nicolás Maduro, setting the stage for a US takeover of the country’s oil industry, which had long sold sanctioned oil to China and a small handful of other buyers.
Venezuela is believed to hold the world’s largest oil reserves, estimated at roughly 300 million barrels of heavy crude, but the industry had fallen into disrepair over the preceding decades, leaving oil traders unsure of what an eventual restart could look like. Benchmark oil futures largely held steady, ticking up only slightly.
But the geopolitical tremor that was the all-but-named US takeover of Venezuela would quickly be overshadowed by what would become the defining world event of the first half of 2026: the war in Iran.
Read more: How oil price shocks ripple through your wallet, from gas to groceries
Oil prices began to tick up in mid-January as protests raging in the streets of Tehran were forcibly suppressed by the Iranian Revolutionary Guard Corps, prompting President Trump to publicly warn that the Islamic Republic would “pay a big price” for its silencing of protesters.
Worries began to coalesce around what potential US intervention could mean. Crucially, Iran sits along the northeastern coast of the Strait of Hormuz, the world’s most important chokepoint for global oil flows. Roughly 15 million barrels per day of crude oil from Persian Gulf producers reached the global market through the waterway, only 21 miles across at its widest point.
Oil rigs pictured in Cabimas, south of Lake Maracaibo, Zulia State, Venezuela, on Jan. 31, 2026. (Maryorin Mendez/AFP via Getty Images) · MARYORIN MENDEZ via Getty Images
In the thousands of years that the strait had been used as a trading route, it had never been shuttered, even during the 1980s, when the Iranian government placed mines throughout the waterway. Analysts talked about the possibility as a worst-case scenario for the global energy market.
“Iran’s at the nerve center of the global oil market,” Ben Cahill, director for energy markets and policy at the University of Texas Austin’s Center for Energy and Environmental Systems Analysis, told Yahoo Finance in January.
“If there’s a physical supply disruption, the market will react in a big way,” he said.
By the end of January, Brent and WTI had both run up roughly 15%, trading above $70 and $65 per barrel, respectively, as Washington and Tehran repeatedly failed to make progress toward signing a new nuclear deal that would replace the Obama-era JCPOA, one of President Trump’s marquee goals for his presidency.
As talks faltered, the US military positioned warships near Iran, and President Trump warned that the armament was “ready, willing, and able to rapidly fulfill its mission, with speed and violence, if necessary.”
That long-feared disruption came one month later, when the US and Israeli militaries began a major campaign of airstrikes throughout Iran around 3 a.m. ET on Saturday, Feb. 29, that killed the country’s supreme leader, Ayatollah Ali Khamenei. Iran almost immediately retaliated, lashing out at energy, military, and civilian infrastructure throughout the Gulf region. Refineries, ports, airports, and hotels throughout Saudi Arabia, Kuwait, the UAE, and Bahrain were struck repeatedly.
Cars drive down a highway as smoke billows after overnight airstrikes on oil depots on March 8, 2026, in Tehran, Iran. (Majid Saeedi/Getty Images) · Majid Saeedi via Getty Images
More critically for the oil market, Iran’s Revolutionary Guard Corps announced the same day that no ships were to pass through the Strait of Hormuz and shortly after began firing on vessels, leaving hundreds of ships stuck inside the Persian Gulf. Several oil majors and major trading houses suspended oil and fuel shipments through the Strait of Hormuz in the minutes after the US attack, according to Reuters.
Early analyst calls forecast prices jumping $10 to $20 per barrel on both Brent and WTI, under models that assumed a slowdown in conflict and renormalization of shipping traffic in the Strait of Hormuz within March. Only weeks later, Brent crossed $126 per barrel, and WTI nearly reached $120, premiums of roughly 75% above prewar levels for both contracts.
The two primary oil pipelines capable of moving oil around the Strait of Hormuz, one each in Saudi Arabia and the UAE, can move only about 7 million barrels per day, leaving the market in a deep deficit. As the war raged on and the Strait of Hormuz remained closed, Gulf countries such as Kuwait, Iraq, and Bahrain began shutting down oil wells as on-land storage filled, with no escape valve to release pressure.
‘Resilience and adaptability’
Now, four months later, Brent trades at $74 a barrel, and WTI at $70 — roughly where they sat just before the initial US and Israeli airstrikes. A tenuous ceasefire agreement and memorandum of understanding between the US and Iran have seen shipping traffic begin to pick back up in the Strait of Hormuz, though analysts warn full normalcy is likely to remain a long way off.
Even as the Hormuz crisis created the largest energy supply disruption on record, the market found ways to rebalance. China, which spent 2025 buying up vast sums of oil, slowed its imports; airlines cut flights; governments in Southeast Asia issued strict usage quotas; and global producers raised output.
Despite calls for oil to reach $200, $250, or even higher from many corners of the physical commodities market, prices never quite crested the highs of the 2022 supply crisis.
While daily volumes of oil crossing the Strait of Hormuz have steadily risen since the signing of the US-Iran memorandum of understanding, they remain depressed below prewar levels of roughly 20 million barrels per day. (Credit: JPMorgan Commodities Research) · JPMorgan Chase
“The commodity most visibly affected by the Straits of Hormuz disruption is also the one that has shown the most resilience and adaptability,” Macquarie analysts wrote in a recent note to clients.
“Oil went into the disruption with a long inventory and production overhang positioning,” they added. “Combined with this preparation, the remarkable flexibility and inherent optionality in the oil supply system has allowed it to weather the disruption far better than we had thought it would.”
Analysts around Wall Street have begun lowering their oil price targets, unwinding a series of hikes. Expectations for 2026 now average $84.50 per barrel for Brent crude and $79.49 for US WTI, down from expectations of $90.44 and $84.63, respectively, a month ago, according to Reuters data.
Many oil watchers have now returned to calls for an oversupply as Persian Gulf oil floods back onto the market and world producers maintain their heightened output on fears of another major disruption. Gulf countries have begun planning and funding reroute projects around the Strait of Hormuz, and major US producers are set to soon begin ramping up production in Venezuela.
At the same time, the world is electrifying and increasingly moving away from fossil fuels. World oil demand is now expected to fall by 1.1 million bpd in 2026, per the IEA. The agency, as in December, has estimated that 2027 will see a steep oil supply overhang, as supply is set to surge by 8 million bpd while demand rises by a much slimmer 2 million bpd.
“If the past four months have reinforced one lesson, it is that commodity markets always clear,” said Natasha Kaneva, JPMorgan head of commodities research. “But the path they take to get there is what determines where prices ultimately settle.”
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
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