A proposed deal with Iran — yet another in a series that have been emerging as regularly as weekly video entertainment episodes — again seems to have set off reactions among oil traders. Prices dropped on both West Texas Intermediate crude (down -1.73% to $87.36) and Brent crude (down -1.7% to $91.12).
Below is a one-year graph from the Federal Reserve Bank of St. Louis FRED site of both WTI and Brent pricing through Tuesday, May 26, 2026.
On the last day of the graph, WTI stood at $97.63 and Brent was $102.75.
Deciding whether that is good or bad news is difficult to understand. Some other information suggests that rather than getting better, things might turn worse. Perhaps not, but when experts who understand all the data, all the implications, get concerned, it’s time to pay attention.
Circumstances of oil in the Middle East are far more than transit through the Strait of Hormuz. There is production and storage of oil. The International Energy Agency executive director says that between the disruption to oil and gas flows through the Strait and attacks on energy infrastructure in the region are “the greatest threat to global energy security in history.”
Observed global inventories, including those in ships on water, drew down 246 million barrels between March and April, or 4 million barrels per day. The IEA’s May report said that assuming flows through the Strait gradually resume from June, “global oil supply is projected to decline by 3.9 mb/d on average in 2026, to 102.2 mb/d.
Oil inventories have been heavily tapped to continue the flow of oil into the market. That capability is running out.
On Thursday, May 28, ExxonMobil appeared at the Bernstein 42nd Annual Strategic Decisions Conference. Senior Vice President Neil Chapman discussed how the dynamics of existing oil inventory are critical, based on a transcript provided by S&P Global Market Intelligence.
“Well, first of all, the Saudis maxed out on their East West pipeline. So they’re running 5 million barrels a day of crude from the east to the Red Sea and that obviously, you can get into the global market,” Chapman said. “I think what people appreciate less, there was a lot of sanctioned crude oil on the water. In other words, unsold. Iranian, Venezuelan, Russian crude.” It’s now gone to market and made up for some of the loss of oil through the Strait of Hormuz.
“Most importantly, though, is what’s happened to inventories and this really is a telltale for what could well happen in the coming weeks,” he added. “Commercial inventories of crude oil, of liquids-linked petroleum, gasoline, diesel, jet fuel, they’ve all run down and running down those inventories as mitigated or offset supplemented by the release of strategic petroleum reserves, which most of the Western countries have done.”
Models suggest that the planet is “approaching unheard of inventory levels. I mean, really, really low levels.” That could happen in two or three weeks or possibly a month, Chapman said. Once there, prices will run up to $150 or $160 a barrel.
According to the site Energy News Beat, Chevron Chairman and CEO Mike Wirth said something similar about physical supply at a Milken Institute event and some industry conferences, that “physical shortages” in oil supply have begun to appear. The disruption scale could be as large as in the 1970s. He expects “direct upward pressure on physical prices” to increase as the physical inventories, which act as shock absorbers to the global oil industry, are depleted.
High oil prices will mean greater expenses for car, truck, and boat fuels; higher impact on food prices; more expensive air travel; and greater cost of construction and manufacturing. Inflation numbers could jump significantly over the next couple of months, especially if politicians cannot negotiate a way out of the current standoff.
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