Despite a 1.6 million b/d drop in crude oil transit through the Strait of Hormuz since 2022, a key chokepoint, global oil prices have remained surprisingly steady. Volumes of crude oil and condensate transiting this critical waterway fell by 1.6 million b/d between 2022 and 2024, according to the EIA. This significant reduction in supply, coupled with a 4.6 MMbpd drawdown in observed oil stocks in May (World Oil), typically signals robust demand or tight supply. Yet, prices hold steady. Therefore, the market is currently prioritizing demand destruction signals over geopolitical supply risks. A global economic slowdown is a more dominant force than regional tensions in shaping near-term oil prices. The current stability is a mirage: a 5 MMbpd plunge in oil deliveries during Q2 (World Oil) reveals demand destruction masking severe underlying supply vulnerabilities, setting the stage for extreme volatility once economic conditions improve.

Demand Destruction: The Stabilizing Force

  • Oil deliveries plunged by 5 MMbpd during the second quarter as consumers and refiners responded to higher prices and limited product availability (World Oil).
  • The IEA cut its 2026 oil demand forecast by 700,000 bpd, now expecting global consumption to decline by 1.1 MMbpd this year (World Oil).
  • Global refinery crude runs are now forecast to contract by 2 MMbpd in 2026 to 82 MMbpd (World Oil).

These figures confirm that consumers and refiners are actively reducing consumption in response to sustained high prices. Powerful downward pressure on demand is created, overriding geopolitical supply fears. The 4.6 MMbpd drawdown in oil stocks in May is not a bullish signal for crude prices. Instead, it is a symptom of refiners reducing new crude purchases and depleting existing inventories due to plummeting demand for refined products. A deeper economic contraction than headline oil prices imply is suggested.

Consumers Still Face Elevated Costs

The average price for regular gasoline was $4.31 per gallon and diesel was $5.35 per gallon as of June 1 (Brookings). These figures reflect a substantial burden on consumers, with gasoline prices about $1.50 and diesel about $2.00 greater than their prewar levels in mid-May (Brookings). It effectively acts as a hidden tax, fueling demand destruction and prolonging economic stagnation despite the market's temporary equilibrium.