Oil prices have risen significantly following renewed Israeli strikes on Lebanon, with the strikes diminishing hopes for peace and the reopening of the crucial Strait of Hormuz. According to latest reports, the strikes pose a barrier to a US-Iran peace deal and the reopening of the Strait of Hormuz, creating additional supply disruption concerns beyond the existing closure. OPEC+ agreed to boost oil output by 188,000 barrels per day in July, marking the fourth consecutive month of production increases by the group. However, analysts believe OPEC+'s output increase will have little impact due to the Hormuz closure and production shortfalls, as the closure has now lasted 14 weeks and Fitch assumes it will not start to reopen until July. The rating agency expects Brent to remain at $100-$110 per barrel during June and July, before retreating as supply recovers. Latest market data shows oil prices rose more than US$2 following the renewed strikes, with the US dollar remaining near a two-month high amid ongoing geopolitical uncertainty.
Fitch Ratings has revised its outlook for the global oil and gas sector to 'improving' from neutral, citing a sharp rise in oil prices triggered by supply disruptions linked to the closure of the Strait of Hormuz and stronger near-term earnings prospects for producers. The rating agency has raised its 2026 average Brent crude price assumption to $87 per barrel, up from the $70/bbl estimated in March, compared with an average of about $68 per barrel in 2025. According to Fitch, the sector is expected to benefit from elevated crude prices in the coming months despite ongoing geopolitical uncertainty in West Asia. The upgrade points to a windfall for producers from a supply shock that has lifted prices well above last year's levels, with the agency noting that higher oil prices are likely to support cash flows, profitability and credit metrics across the industry. Fitch's base-case forecast assumes the Strait of Hormuz will reopen by the end of July, signifying an effective five-month closure. The agency emphasizes that 'The current price spike reflects a temporary logistical supply shock rather than a lasting loss of production capacity', with Brent crude prices expected to decline sharply once regular maritime traffic through the strait resumes.
The most consequential market development has been China's crude import collapse, with May figures showing 33.08 million tonnes — 7.79 mb/d — the weakest monthly print since October 2017. Against an average import rate of 11.6 mb/d through 2025, this represents a fall of nearly 4 million barrels a day. The sequential collapse is even more striking: from 11.39 mb/d in February, to 9.3 mb/d in April, to 7.79 mb/d in May. The Hormuz closure has effectively cut China's import pipeline in half, with the structural problem being that even if a peace deal were signed tomorrow, the physical normalisation of Hormuz shipping would take months, not days. About 2,000 ships remain stranded in the Gulf, and the US has said mine-clearing operations alone will take six months. Meanwhile, China's NEV penetration rate hit a record 62.9% in May, with all ten of China's best-selling passenger cars being new-energy vehicles, as ICE vehicle output fell 45% year-on-year in the first four weeks of May.
India's crude import story has received less attention but shows comparably significant changes, with the country now importing around 19 million tonnes — a decline of 13 to 15% from the roughly 22 million tonnes per month before the war. The IEA's May Oil Market Report quantified India's import reduction at 760,000 barrels per day from February to April levels. Middle Eastern supply to India plunged 61% in March, partially offset by Russian crude which nearly doubled to 2.25 mb/d as Indian refiners took advantage of a temporary US waiver on purchases of Russian oil already at sea. India's consumer price inflation has not yet risen significantly, but price pressures are mounting; wholesale prices rose by 8.3% year-on-year in April and CPI inflation to 3.5%. The rating agency expects inflation to rise steadily over the months ahead, reaching 5.3% by the end of the calendar year.
The EIA's June Short-Term Energy Outlook delivered what may be the starkest single inventory projection in two decades, with OECD stocks forecast to fall to 50 days of future demand cover by end-2026 — the lowest since January 2003. The weekly EIA petroleum report for the week ending May 29 showed US commercial crude stocks falling by 8 million barrels to 433.7 million barrels — now 3% below the five-year average. Combined with SPR drawdowns, total US crude stocks have fallen roughly 90 million barrels from their recent peak, with 17 million barrels drawn in a single week. Distillate inventories at 102.3 million barrels are uncomfortably close to the psychologically critical 100-million-barrel threshold — a level last breached in 2003. The EIA's June STEO projects Brent averaging around $105/bbl in June and July, with the full-year 2026 average at $95 — the highest annual average since 2022. Global oil inventories are forecast to fall by an average of 6.3 mb/d through Q2 2026.
The crude oil market in June 2026 is colliding simultaneously with accelerating structural demand destruction from the EV transition in China, cyclical demand compression across Asia driven by high prices, and a tightening macro environment in the United States. Brent is likely to remain range-bound in the near term — roughly $88 to $108 — with the upside capped by demand evidence, the dollar, and the macro backdrop, and the downside supported by structural inventory deficit and Hormuz setback risks. A fresh military escalation would reassert the $110-plus premium with equal speed. The macro environment has turned against oil at precisely the wrong moment, with the May US non-farm payrolls report delivering a 172,000 beat versus consensus, driving the 10-year Treasury yield from 4.47% to 4.53% and strengthening the dollar against all major currencies. Despite the expected moderation in prices later in the year, Fitch indicated that the near-term earnings environment for oil and gas companies has improved significantly, supporting the revised sector outlook and strengthening balance sheets across much of the global energy sector.
