Oil Markets Face Historic Supply Shock

Global oil supply will not meet total demand this year as the Iran war wreaks havoc on Middle East oil production, the International Energy Agency said in its monthly oil market report on Wednesday.

The IEA forecasts imply that supply will come in 1.78 million barrels a day below total demand in 2026, in contrast to a 410,000 barrels a day surplus projected in last month's report.

"With Hormuz tanker traffic still restricted, cumulative supply losses from Gulf producers already exceed 1 billion barrels with more than 14 million barrels per day of oil now shut in, an unprecedented supply shock," the agency said. According to market data, WTI crude traded at $71.50 per barrel on Tuesday, up 0.6%, while Brent crude stood at $75.20 per barrel, up 0.5%.

The U.S. Energy Information Administration assessed that Iraq, Saudi Arabia, Kuwait, the UAE, Qatar, and Bahrain collectively shut in 10.5 million barrels per day of crude oil production in April.

Saudi Aramco CEO Amin Nasser warned Monday that the oil market will not normalize until 2027 if the disruption in the Strait of Hormuz persists past the middle of June.

Can U.S. Production Fill the Gap?

U.S. total crude oil and petroleum products exports hit a record 12.7 million barrels per day in the most recent reported week, with the U.S. exporting a record 12.7 million barrels of crude oil and refined products per day last week.

The EIA forecasts U.S. crude oil production will average 13.5 million barrels per day in 2026, about 100,000 barrels per day less than in 2025.

The EIA expects global oil inventories will fall by an average of 8.5 million barrels per day in the second quarter of 2026, keeping Brent prices around $106 per barrel in May and June.

The Saudi Aramco CEO said the oil market will lose 100 million barrels of supply every week Hormuz is closed, with the total net loss so far at 880 million barrels.

The biggest challenge facing the market is the disruption to the global tanker fleet, Nasser said, with more than 600 ships, mostly oil and product tankers, currently stuck in the gulf, and around 240 ships waiting outside Hormuz.

Will Europe's LNG Gamble Pay Off?

The European Union's dependence on liquefied natural gas from the United States is set to rise significantly, reaching 80% of all LNG imports in two years, the Institute for Energy Economics and Financial Analysis has warned, noting that the European Union already imports significant volumes of U.S. liquefied gas, creating a potentially risky dependence on a single supplier.

LNG imports from the United States into the EU accounted for 58% of overall LNG imports.

Europe is on track to source roughly two-thirds of its LNG imports from the United States in 2026, according to new data from IEEFA, up from 63% in the first quarter and from 57% a year ago.

According to market data, Henry Hub natural gas traded at $3.25 per MMBtu on Tuesday, down 2.4% from the prior session. Disruptions linked to conflict in the Middle East and threats to shipping through the Strait of Hormuz have hit Qatari exports and disrupted around 20% of global LNG supply, forcing European buyers to lean harder on Atlantic Basin cargoes, particularly from the United States.

Why Are Copper Prices Hitting Records?

Copper futures in the US surged above $6.4 per pound, the highest on record, as the ongoing conflict between the US and Iran in the Middle East has all but suspended exports of sulphur and sulphuric acid from the key region since March.

The tight supply for the commodity, which is used by refiners through heap leaching and purifying copper to produce anodes, drove China to suspend exports, and consequently, the shortage in top copper producer Chile forced major refiners to cut capacity and lower supply.

Copper jumped above $14,000 a ton, closing in on a record high as a rebound in Chinese demand and mounting supply risks outweigh concerns about the Iran war's impact on global growth. MarketWatch reported that copper prices are now at their highest level on record, with AI being only part of the story.

China has announced it will halt exports of sulfuric acid from May to protect its domestic supply, which could create further tightness in the copper market, given that approximately 15% of global copper production is directly reliant on sulfuric acid availability.

What Changed This Week

The energy landscape shifted dramatically as the IEA's latest assessment confirmed what markets had feared: the Strait of Hormuz crisis has created a structural supply deficit that stockpiles alone cannot bridge. Saudi Aramco's warning that normalization won't come until 2027 underscores the severity of tanker fleet disruptions, with over 600 vessels stranded in the Gulf. Meanwhile, Europe's pivot away from Russian gas has accelerated its dependence on U.S. LNG to levels that raise new energy security concerns, even as copper markets signal broader supply chain stress from the conflict's ripple effects on sulfuric acid exports.

What to Watch

The IEA's base-case forecast is for a gradual resumption of traffic through the Strait of Hormuz from the third quarter onwards.

The EIA's next Short-Term Energy Outlook release is scheduled for June 9, 2026.

"Even in the most optimistic scenario, energy and commodity supply chains will need several months to return to the pre-conflict traffic as vessels reroute or avoid being idle," Nasser said. Traders should monitor weekly EIA inventory reports and any diplomatic developments around Hormuz transit negotiations, as well as China's sulfuric acid export policy decisions that could further tighten copper markets.