Oil Prices Stay High as War Keeps Supply Tight Into 2027

During the first three months or so of the U.S. and Israeli war with Iran, the dominant mood on oil markets was that the conflict would end any day now. The brief June ceasefire reinforced that optimism, so it took a while longer for facts to be faced: the war would not end any day now. It might even extend into next year—and this means higher prices for a longer time.

The ICE Brent crude futures contract for January 2027 is trading at $102.59 per barrel. The June 2027 contract is only slightly lower, at $92.71 per barrel, and the December 2027 contract is trading at $84.75 per barrel. For context, in December 2025, Brent crude was trading at less than $70 per barrel. Back in March, most oil market observers and players seemed to expect prices to retreat from their war-fueled highs fast. Now, those who use oil seem to expect supply to remain tight, and they are hedging their future consumption at higher prices.

In refined fuels, the situation is even more challenging, especially in diesel. Those outlets that reported the almost total recovery in oil flows out of Hormuz did not have the same news about fuel flows, because so many refineries in the Middle East became targets in Iran’s retaliatory strikes. The world’s fuel supply is tight and getting tighter by the day.

The International Energy Agency said this week it will begin releasing more than 20 million barrels of diesel from collective inventory to help fill the supply gap that has pushed prices to all-time highs. The total diesel release could reach 50 million barrels, or half of the total inventory release IEA members agreed earlier this month under tariff pressure from President Trump. The problem with inventory releases is that sooner or later they will run out—and replenishment will be difficult because the world is, quite plainly, short on refining capacity.

Despite these developments, the IEA appears to still believe peace between the United States, Israel, and Iran, is only a matter of time. Indeed, the agency said in its latest monthly oil report it expected global oil supply to rebound to 108.3 million barrels daily, from less than 101 million barrels daily this year. This would mean an increase of over 7 million barrels daily—and this would mean that oil flows out of the Middle East have not, in fact, recovered to pre-war levels, not to mention LNG flows.

All this means that inflationary pressures driven by the high cost of energy commodities would continue to weigh on the global economy for a longer period than initially hoped. Central bankers are already getting nervous, and so are governments. There is only a limited number of options of how to handle such a situation, and most of them involve spending tax money on temporary relief at the pump. That, however, cannot continue forever, and it especially cannot continue for very long in a state of economic stagnation or even recession.

For now, official global economic growth forecasts appear upbeat. The International Monetary Fund earlier this week said the global economy could expand by a pretty decent 3.4% next year thanks to its resilience. However, the lender’s chief economist warned that “The global economy has been resilient, but that resilience is reaching its limits, so we need to move from just coping to rebuilding. We need to restore fiscal space. We need to rebuild supply-side resilience,” Silvana Tenreyro said.

However, rebuilding normally begins once the hostilities are over, and the hostilities in the Middle East—and Russia and Ukraine, for that matter—are very much ongoing, and the outlook is uncertain for both. It seems that for now, the world will need to continue coping rather than rebuilding, and get used to costlier energy across the board for the observable future—much costlier. The ICE low-sulfur gasoil futures contract for November is trading at over $1,404 per ton. The contract for December 2027 is trading at $1,001 per ton. Things in oil and gas are not coming back to normal in a few days, not even in a few weeks.

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