Oil Markets Shift From Crisis to Surplus Fears

$71.50/bbl per barrel. That's where oil closed on Wednesday, up +0.63%, as the U.S. and Iran began a 60-day negotiating window following their memorandum of understanding to reopen the Strait of Hormuz . The war blocked more than 14 million barrels per day of Middle East oil output, according to the IEA — the largest oil supply disruption in history . Yet even as Pakistan announced that Tehran will promptly reopen the strait and the American blockade of Iranian ports will cease immediately , the market's attention has already pivoted from shortage to surplus.

The IEA said Wednesday that the oil market will recover gradually from the Hormuz closure before tipping into a significant surplus in 2027 . The numbers are stark: global supply is set to surge by 8 million barrels per day while demand rises by just 2 million , leaving supply outweighing demand by 5.05 million barrels per day next year . That's enough oil to run Germany for nearly four months—flooding the market every single day.

The whiplash is extraordinary. Three months ago, analysts feared $200 oil and gasoline rationing. Now the Financial Times reports that the surplus could "provide a welcome respite to the market and an opportunity to replenish depleted inventories, or to build new strategic reserves" . But there's a problem: America's emergency cushion is nearly gone.

How Low Can the Reserve Go?

The U.S. Strategic Petroleum Reserve hit 349.2 million barrels on June 5, and it's being drained by close to 9 million barrels every week , Fortune reported. Going any lower puts the SPR at levels not seen since August 1983 —when the reserve was still being filled. At 350 million barrels, the SPR is approaching the level at which roughly 70 million barrels remain as the functional floor, limiting the government's ability to intervene in another supply shock , according to Mike Sommers, CEO of the American Petroleum Institute.

The drawdown has been relentless. U.S. crude oil inventories fell for a tenth straight week last week, pushing total stockpiles to their lowest level since 1985 , the EIA said Wednesday. OECD inventories are expected to fall to 50 days of future demand cover by the end of 2026, the fewest since January 2003 , the agency warned in its latest outlook.

The timing is brutal. Just as the world needs a buffer to absorb the gradual return of Gulf barrels, the cupboard is bare. A reduction of 38 million barrels in gasoline inventories has already been recorded, an amount Sommers described as roughly equivalent to the full inventory buffer the U.S. relies on across the summer driving season . If another disruption hits before inventories rebuild, the market has little left to cushion the blow.

Can Shale Fill the Gap Fast Enough?

The IEA's 2027 glut forecast assumes Gulf producers will gradually restart shuttered oilfields following the Iran-related conflict resolution . But "gradual" is doing heavy lifting. Supply normalization may remain gradual as shipping routes through the Strait of Hormuz continue to operate below pre-conflict efficiency , the agency noted. Confidence remains in short supply due to potential threats including mines, drones and missile attacks, with one shipping CEO saying his firm is "maintaining enhanced manning and citadel readiness until we have 30 days of incident-free transits" , according to CNN.

Meanwhile, U.S. shale is doing what it does best: responding to price signals. But even American production can't replace 14 million barrels per day overnight. Rig count increases and rising Permian and Alaska output are the only near-term offsets, but Sommers is explicit that domestic supply response cannot substitute for reopening the strait .

The market is pricing in optimism. Oil prices have already reflected that shift, with traders unwinding positions since the ceasefire announcement and crude benchmarks sliding to multi-month lows . Yet lower crude prices have not fully translated to consumers yet, with many Americans still paying $10 to $25 more per fill-up than a year ago , according to GasBuddy's Patrick De Haan.

What About the Activists Circling Devon?

While oil markets swing from crisis to glut, the U.S. shale patch is bracing for a different kind of volatility: activist investors. Activist investor TOMS Capital Investment Management has acquired a sizable stake in Devon Energy and is pressing the U.S. shale operator to sell assets or put itself up for sale , according to sources cited by BOE Report. The hedge fund, which is backed by Citadel and manages around $2.8 billion in assets, has become a top-five investor in Devon , the Financial Times reported.

The timing is pointed. Fresh from a $58 billion merger with Coterra Energy, which it completed in May, Devon is in the midst of laying out its strategy for the combined company . Devon said on June 9 it plans to optimize its portfolio around its core Permian position, with a strategic and financial review of its assets under way . But that's not fast enough for some. Prominent energy-focused investor Kimmeridge has called for actions, including asset sales, to streamline the business and avoid a "conglomerate discount" in the stock price .

TCIM has a track record of taking constructive activist positions, typically engaging privately with management rather than pursuing public campaigns , Hedgeweek noted. Translation: expect quiet pressure, not proxy fights. For now.

The Invisible Energy Crisis No One's Pricing In

There's another supply crunch brewing, and it has nothing to do with the Strait of Hormuz. The International Energy Agency estimates that global data center electricity use reached about 415 terawatt-hours in 2024, and that number could rise to more than 1,000 TWh by 2026, largely driven by AI applications . Data centers accounted for 17% of electricity demand growth worldwide last year, compared with around 50% in the U.S. , Fortune reported.

The grid can't keep up. As AI workloads scale from pilots to production, electricity demand is rising faster than the U.S. power grid—much of it built decades ago—was designed to handle , according to Data Center Knowledge. The Federal Reserve Bank of Dallas estimates that with data center electricity demand expected to double in the next five years, wholesale power prices could rise by as much as 50 percent .

OilPrice.com put it bluntly: every AI boom forecast being published right now assumes the electricity will be there when they need it. It won't. Companies that locked in gigawatt-scale power contracts years ago—like Bitzero in Norway, Finland, and North Dakota—are sitting on gold. Everyone else is fighting over scraps, waiting years for interconnection approvals, or quietly shelving expansion plans.

The irony is rich. Oil markets are preparing for a glut while electricity markets face a structural deficit. One commodity's surplus is another's scarcity.

What Changed This Week

The U.S. and Iran signed a memorandum to end the war and reopen Hormuz, starting a 60-day clock on nuclear negotiations. Oil slid as traders priced in the return of Gulf barrels, but the IEA's 2027 glut warning suggests the relief could overshoot into oversupply. America's Strategic Petroleum Reserve fell below 350 million barrels for the first time since 1983, leaving the country with its thinnest emergency cushion in four decades just as it tries to manage the transition back to normal flows.

What to Watch

The formal signing of the U.S.-Iran deal, which Pakistan said would happen in Geneva, will mark the official start of mine-clearing operations in the strait. Watch weekly EIA inventory data for signs that the SPR drawdown is slowing—or accelerating. Devon Energy CEO Clay Gaspar speaks at JPMorgan's energy conference in New York on June 24; any mention of asset sales or portfolio optimization will signal how seriously management is taking activist pressure. And keep an eye on natural gas storage data Thursday— bears and bulls remain deadlocked ahead of the latest weekly government storage report , Natural Gas Intel reported, with $3.25/MMBtu per MMBtu (-2.40%) reflecting the uncertainty.