In its July 7 Short-Term Energy Outlook (STEO) report, the US Energy Information Administration (EIA) said it expects global oil prices to decline as supply disruptions linked to the Strait of Hormuz ease and production recovers. 

On June 18, the US and Iran signed a memorandum of understanding to end the conflict and reopen the strait, which had been largely closed since Feb. 28. The disruption to this critical oil transit chokepoint constrained global flows, driving major price volatility.

Brent crude averaged $85/bbl in June, down $22/bbl from May and $32/bbl below its April peak. Prices fell below $70/bbl on July 1 as tanker traffic through the strait increased sharply, easing supply concerns. EIA now expects most shut-in crude production to return to near pre-conflict levels by yearend, with full restoration largely to be completed by first-quarter 2027. 

Despite the recovery in flows, global inventories remain significantly depleted following earlier draws. EIA estimates oil inventories declined by an average of 5.1 million b/d in second-quarter 2026 and will fall by a further 2.2 million b/d in third-quarter 2026, as much of the recent tanker movement reflects previously stranded cargoes. As a result, the market is expected to remain relatively tight through most of third-quarter 2026 before shifting back into oversupply.

EIA forecasts global oil consumption will decline by 1.2 million b/d in 2026, led by a 0.8 million b/d drop in non-OECD demand, particularly in the Asia Pacific. Demand is expected to rebound in 2027 as prices ease and supply normalizes, with consumption rising by 2.0 million b/d to 104.8 million b/d. 

As supply growth outpaces demand, inventories are projected to build by 2.7 million b/d in fourth-quarter 2026 and by 5.0 million b/d in 2027. This shift is expected to place sustained downward pressure on prices.

EIA forecasts Brent crude will average $70/bbl in fourth-quarter 2026, $19/bbl lower than in its June outlook, and $65/bbl in 2027, down $15/bbl from the prior forecast. Strategic and commercial stock replenishment is expected to partially offset the price decline.