This week witnessed a major geopolitical turning point: the announcement of a peace deal involving the US, Iran, Pakistan, and Qatar to end the Middle East conflict. While details remain unclear - particularly regarding sanctions, control of the Strait of Hormuz, and Israel’s presence in Lebanon - the announcement has already had a strong market impact. Oil prices dropped sharply as expectations of renewed flows through the strait improved sentiment. However, logistical challenges such as mine clearance, damaged infrastructure, and refinery shutdowns mean that supply recovery will likely be gradual. Despite this, banks have revised price forecasts downward, anticipating eventual stabilisation.
Ukrainian attacks on Russian energy infrastructure have intensified. These disruptions have caused fuel shortages, prompting the temporary relaxation of environmental regulations to boost domestic fuel production. Higher permissible sulphur and toxic content reflect the urgency of maintaining supply, while fuel prices and shortages continue to rise across regions.
Oil demand expectations have weakened further. The EIA now projects a decline in global demand in 2026, while OPEC has also downgraded its growth forecast, though it remains comparatively optimistic. Uncertainty over the Strait of Hormuz and broader geopolitical developments complicates demand projections, but a successful peace deal could trigger a rebound.