Why Global Oil Prices Remain Above $100 a Barrel Despite Supply Recovery

Geopolitical risks continue to weigh heavily on markets, with traders fearing renewed hostilities between the US and Iran at any moment. The deployment of an additional US aircraft carrier and more troops to the Persian Gulf has heightened these concerns. Iran’s intermittent attacks on ships in the Strait of Hormuz further complicate the situation, threatening one of the world’s most critical oil transit chokepoints.

Global oil inventories have been severely depleted, now sitting at their lowest level in five years. Data from Energy Aspects shows worldwide stockpiles have fallen to approximately 4.3 billion barrels, a decline of over 400 million barrels since March, the first full month of the war. This drawdown has been exacerbated by Russia’s ongoing war with Ukraine, which has blocked exports from key refining hubs and disrupted the conversion of crude into finished fuels like diesel.

Logistical challenges in moving oil out of the Gulf region are adding significant costs. Transporting crude via the Strait of Hormuz now relies on complex methods such as trans-strait shuttles and ship-to-ship transfers. Tanker rates have surged to record levels, exceeding $1.2 million per day for routes from the Persian Gulf to China, increasing the cost burden on consumers and industries.

Even though Middle Eastern oil shipments have risen, the market is pricing in more than just volume — it is assessing the safety, reliability, and cost of delivery. Analysts note that a recovery in supply flow does not equate to a full normalization of the global oil supply system. Meanwhile, global demand has rebounded to about 104.8 million barrels per day, up 6.5 million barrels from the wartime low reached in May.

Refineries outside the Middle East and Russia are operating at high capacity to compensate for lost output, increasing the risk of unplanned outages due to equipment strain. These facilities are paying premiums to secure steady crude supplies to keep operations running. The sustained elevation in fuel prices has also drawn attention from central bankers, who warn that rising energy costs could fuel inflation and potentially lead to higher interest rates.

Market participants continue to view oil as an inflation hedge, particularly as bond yields rise, which may support prices independent of physical demand fundamentals. Until geopolitical tensions ease, inventories rebuild, and refining capacity normalizes, crude prices are likely to remain elevated above the $100 threshold.