What is happening with oil markets as summer approaches? 🛢️

As the Iran War continues, global oil stockpiles are draining at an unprecedented rate heading into the peak summer driving season. According to the International Energy Agency (IEA), the combination of peak seasonal demand and severe supply shocks has placed global oil markets in a “red zone,” with a high risk of inventories hitting historic lows by July and August. The situation represents an extraordinary structural deficit rather than standard seasonal tightening.

The ongoing war in Iran has resulted in the de facto closure of the Strait of Hormuz, shutting in roughly 14 million barrels per day (bpd) of Middle Eastern supply. This represents the largest sudden oil supply shock in history. While a massive, coordinated 400-million-barrel emergency release from strategic reserves initially cushioned the market, these government stockpiles are rapidly emptying. The U.S. Strategic Petroleum Reserve (SPR) sits at its lowest level since 1983. Global observed inventories plummeted by 246 million barrels across March and April alone. U.S. commercial crude stocks recently dropped by 8 million barrels in a single week, while refined products like gasoline and diesel are drawing down nearly twice as fast as last year. Even where raw crude exists, the U.S. faces a severe crunch in domestic refining capacity to turn that crude into gasoline. U.S. diesel inventories have plummeted to a 23-year low.

While the numbers look kind of bad, structural forces are preventing a total energy collapse. There is record-high domestic production in the U.S. (averaging over 13.7 million bpd), alongside upside surprises from Brazil, Argentina, and Venezuela, which is providing a marginal offset to the lost Eastern supply. Moreover, high prices are doing their job by forcing consumers to pull back. Global oil demand is forecast to contract by 2.4 million bpd in the second quarter of 2026. Notably, Chinese crude imports dropped by 6 million bpd in May, which has kept crude prices from entirely boiling over. The U.S. Energy Information Administration (EIA) model assumes that a diplomatic breakthrough or resolution could allow traffic through the Strait of Hormuz to gradually resume this summer. If this happens, global supply deficits will ease by the fourth quarter of the year.

Gas prices are currently entering the most volatile summer in years, with national retail averages hovering at a $3.70 to $6.00 per gallon. A bit down from a few weeks ago, they still remain mucher then a year ago. Driven by the geopolitical crisis in Iran, baseline gas prices are nearly 45% higher than they were at the start of the year. GasBuddy analysis projects that if shipping routes stay locked, the national average will likely crest between $4.80 and $5.00 per gallon during the peak June-July vacation season. If diplomatic efforts stall and Middle Eastern supply remains locked out, late-summer prices will about $4.50-$4.75 through Labor Day. Compounding this, late August is peak Atlantic hurricane season; any storm disrupting Gulf Coast refineries could instantly tip thin inventories into localized fuel rationing or immediate retail price spikes. Others are not so pestimistic about gas prices by the end of the summer. Energy data modeling from the U.S. Energy Information Administration (EIA) anticipates a gradual lifting of supply tensions later this summer. If shipping resuming timeline holds, the national average could tumble sharply down to $3.65–$3.85 per gallon by late August and September