Oil & the Two Wars

What to watch — which case is materializing?

Left-edge color: green = recovery-case reading, amber = in between, red = risk-case (scenario A/B) reading. Thresholds are author-set (scenario judgment, sources in each tile); values refresh with each data regeneration; each tile links its source.

Brent & WTI daily spot, Nov 2025 – Jul 2026 (USD/bbl)

FRED daily spot (DCOILBRENTEU / DCOILWTICO), refreshed 2026-07-24; the series lags a few business days (last print Jul 20, $86.99) — front futures topped $90 on Jul 20 (Bloomberg) and traded ~$95.5 on Jul 22 (Fortune, 6am ET) on the Kharg-seizure threat and renewed-blockade talk; Goldman warns $120+ if Hormuz disruption persists. Shaded bands are the six war phases; numbered markers are the events tabulated in the Prices tab.

H2 2026–2027: the market vs the forecasters (Brent, USD/bbl)

Actuals: FRED daily. EIA path: STEO July 7 vintage quarterly midpoints ($74.03 Q3 / $70.00 Q4 / $67.63 Q1-27 / $61.97 Q4-27) — assumes de-escalation, pre-dates the July 8 collapse. Strip: Barchart settlements Jul 16 (Dec-27 point is a May 15 vintage). Scenario bounds are analyst quotes (Goldman severe $115; Fink $40 / $150+), not data. The ≈$11 strip-vs-EIA gap is the market's persistence pricing — see the implied-probability panel in the Prices tab. Track record (gray dashed = the two telling STEO vintages): the Feb edition saw FY26 at $58 under the pre-war glut; April's — published the day of the $138.21 peak — saw $96 with Q2 at $115. Each vintage extrapolated the regime it was published in: too low before the war, too high at the peak, and — if the strip's +$11 is right — too low again now. Not conservative, just regime-chasing; the full five-vintage history is keyed, with a source per vintage, in the chart data.

Benchmarks inverted: differentials to Brent, monthly ($/bbl)

All three inversions in one picture — quality and geography broke before quantity did. Dubai's March +$23.6 came with the benchmark itself breaking: Upper Zakum, Al Shaheen and Fateh dropped out as deliverable grades and price discovery migrated to Murban futures. Urals (dashed — sparse third-party assessments, not a continuous series; each point keyed to its source — hover the chart) overran the EU's $44.10 cap so completely it traded at a premium in April–May. WTI–Brent hit a daily extreme of −$25.94 on Apr 8 as Atlantic light sweet was pulled East. Dubai/WTI: FRED monthly series.

Market-implied probability the disruption persists

Scenario modeling: two-state risk-neutral mixture, p = (futures − EIA base) / (severe − EIA base). Assumes exactly two outcomes, risk-neutral pricing, and no variance premium — a calibration device, not a forecast. Sensitivity across severe anchors $105 (Goldman-adjacent) to $150 (Fink bound) shown as columns. Anchors: EIA STEO Jul 7 base; futures Barchart Jul 16 (settlements keyed per contract). This snapshot pre-dates the Jul 17 waiver revocation and the Jul 20–22 rally — spot has since moved ≈$6–14 above it (FRED $86.99 Jul 20; ~$95.5 press Jul 22), so these are floor estimates of what the market prices today.

The implied price/supply curve: what each lost mb/d cost — 2026 vs history’s supply shocks

What the SPR did to pump prices — and what refilling it will do (¢/gallon, US retail gasoline)

World total liquids supply: 2026 by month, and scenario paths into 2027 (mb/d)

IEA total liquids, monthly; scenario paths (author scenario model — toggles above) are author scenarios branching from the last published month, colored by the scenario ladder. Price consequences of each branch are on the Closure scenarios tab.

Where the 12.4 mb/d went: February → May trough, by producer (mb/d)

Producers losing >1 mb/d get their own bar (largest first); smaller losses are grouped; all gains are one offsets bar. Bases are mixed by necessity — monthly crude surveys where they exist, EIA quarterly averages or total liquids where not (hover a bar for its basis and source) — so a residual bar absorbs Russia's drone-strike decline plus the basis mismatch. Estimates, not a published decomposition. Where's China? Correctly absent: the world's #5 producer (~5.5 mb/d liquids) sat this out on the supply side — output was flat (5.58 → 5.52 Q1→Q2, EIA), nothing Chinese was shut in — its war role is imports, stocks and demand (China-buffer panel on the Reserves tab; Demand destruction tab).

Biggest movers: February → trough → latest, by producer (mb/d)

○ Feb (pre-war) · ● trough · ● latest where recovery is visible. Bases are mixed by necessity (monthly crude surveys where they exist, EIA quarterly averages or liquids where not — hover a row); Russia is excluded here — its drone-strike decline rides in the waterfall's residual bar above, and its story is rerouting, not Hormuz. Values keyed from the table below.

OPEC+ crude collapsed 43.4 (Feb) → 35.2 (Mar) mb/d. Quota hikes continued as "paper formality" (+206 kb/d tranches; +188 kb/d for Aug). EIA/OPEC series break at May 2026 when the UAE (~12% of OPEC output) exited.

The grade-mix skew — the war's signature market distortion (mb/d, Feb → May trough)

Barrel counts regrouped from the producer waterfall above (same data, bucketed by grade class; the bypass pipelines carry only lighter grades, so what stayed locked in was the sour end). The largely-sour SPR barrels are one reason the coordinated release punched above its weight for refiners. Russia's medium-sour decline (waterfall residual) is excluded — those barrels rerouted, they weren't locked in. Consequences: Dubai benchmark "effectively broken" (basket cut to Murban+Oman); medium sour at times traded above light sweet; Urals discount $12.6 → $2–3 (WCS, by contrast, was assessed ~$14.40 under WTI for August barrels as of Jul 8); Venezuela's heavy sour got a policy boost (OFAC licenses, ~1.0–1.1 mb/d). Products worse than crude: Gulf product exports (3.3 mb/d) nearly all halted; >4 mb/d of Mideast refining shut; Singapore distillates hit $290/bbl; global runs bottomed ~77 mb/d in April.

Displacement & demand: oil avoided vs added back, 2022–2030 (mb/d) — the wars barely moved it, and 2026 runs backwards

Durable displacement is overwhelmingly structural (EVs above all; the wars' attributable share is a few hundred kb/d) and grinds upward regardless — but 2026 is the reversal year: war-priced gas is adding oil demand back via gas-to-oil switching and the un-done Gulf oil-burn program, knocking net displacement from ~2.4 to ~2.05 mb/d — the first year-on-year decline in the series.

US SPR: 2026 drawdown in detail, and the refill paths into 2027 (million barrels)

Actuals: EIA weekly WCSSTUS1. All three toggleable paths share the committed-release trough (~243 Mb = 311.4 − 68.0) and differ in the drawdown pace and in whether the war ends — the observed pace has tracked the price environment with about a month's lag, so which leg plays out is effectively a price call. Pump-price impact of the release and refill paths: SPR pump-price panel, Prices & Futures tab.

Weekly draw rate (mb/d) — the plateau, the holiday dip, and the re-acceleration

The first derivative of the level chart above (weekly change in EIA WCSSTUS1, ÷7 to mb/d). The draw plateaued at ~1.26 mb/d (8.8 Mb/week) from May 8 through June 19, then ran 0.79 and 0.89, dipped to 0.43 in the holiday-adjacent week ending July 10, and snapped back to 0.73 mb/d in the week ending July 17 (−5.1 Mb to 311.4 — lowest since March 1983, −104.0 Mb from the pre-war peak, 68.0 Mb of the 172 still to deliver): the 0.43 was a holiday artifact, not a policy slowdown. The last three reported weeks average ~0.68 mb/d — squarely on the announced-schedule leg. At the latest ~0.72–0.73 mb/d pace the remaining 68.0 Mb completes around October 20, vs late September at the announced-schedule ~0.97 — same trough, slightly later arrival. Caveat: weekly SPR movements reflect cavern delivery scheduling as much as policy intent (corroboration: factually.co, accessed 2026-07-21).

The 400 Mb collective release: who committed what — and the repayment arithmetic (Mb)

Top: the largest collective action in IEA history, by member commitment; the tick is delivery progress (252 Mb as of Jun 12). Bottom: why DOE's "~200 Mb returns within a year" doesn't reconcile — exchanges + premiums + funded purchases sum to ~175 Mb, and analysts (Sparta/OilX) spread even that over two years. Figures as bulleted above.

How the gap was bridged: production deltas and stock contributions (bars), levels (lines), Feb–Jun 2026

Bars (left axis): each month's moving parts — production change, onshore reserve draws, oil-in-transit contribution. Lines (right axis): the resulting levels, production and delivered supply. The readings: March's cushion was mostly pre-war cargoes draining into ports — tankers, not tanks; in June production rebounded +4.3 but the armada reloaded, which is why delivered sits below production even as output surged.

China's buffer: the implied burn vs what trackers actually saw (cumulative Mb since Mar 1)

How June's −4.9 mb/d was absorbed (mb/d) — reserves were the last resort, not the first

US stocks vs the 5-year range (Mb) — where winter starts from

EIA weekly series (linked under each panel). Gray band = 2021–25 weekly min–max (nearest week-of-year); dashed = 5-yr average. The x-axis runs to December: gasoline and especially distillate enter the winter product season below or at the bottom of their 5-yr bands while Cushing sits near operational tank bottoms — the starting conditions behind the risk case. The April crude hump is SPR exchange barrels + curtailed exports hitting tanks (peak 465.7 Mb, Apr 17).

Round-2 stress test: how long would the buffers last this time?

Scenario modeling — every input is cited; sources linked below. Usable buffer = SPR after the 100–150 Mb cavern-condition haircut and the 68.0 Mb still-committed release, plus other-IEA government stocks (approximated from IEA aggregates: ~800 Mb Feb → ~637 Mb now), plus US commercial stocks above their 2015–25 historical floors (this last is an author judgment call — excluding it gives ~17 vs ~12 months). Release contribution capped at the 2.1 mb/d maximum pace observed in April. In every scenario the gap exceeds release capacity, so cover months measure endurance at maximum contribution; the uncovered residual must be closed by price-driven demand destruction. Shut-in range 8–11 mb/d brackets round-1 observations.

What was hit, how big, and for how long — capacity-weighted outage timeline

Band height = capacity affected, length = time offline, so area ≈ barrel-days lost — that is what "important" means here. Solid = physical damage; hatched = undamaged but blocked or precautionarily shut; ▼ = individual strikes. The Hormuz strip is not to scale — at ~11 mb/d it is 6× the largest damaged asset.

The Russian refining ratchet — a waterfall on the calendar (named sustained outages, mb/d)

Only the named, still-ongoing outages (all seven re-verified mid-July 2026) — a floor, not the tracker total. The steps accelerate visibly: one outage added Nov 2025–Apr 2026, then six in the nine weeks after May 5 — the re-hit-during-repairs cycle described below.

Supply: where the barrels go in each scenario (mb/d)

Prices: three regimes, in order of buffer depletion (Brent, $/bbl)

How to tell which scenario you're in

If the blockade holds: the next 24 months, in six-month chapters

Scenario — author narrative Buffered $94–137 through year-end → rationing $137–189 as usable SPR exhausts Feb–Mar-27 (the full OECD buffer, ~13 months at the 2.1 mb/d release cap from mid-Jul-26, runs to ~Aug-27) → the fork in late-27: B at $170–255, or reopening into the deferred glut (~$65 base) — the prose is judgment; every number is a constant published elsewhere in this report (price bands from the panel above, SPR dates from the Reserves tab, demand tranches from the Demand tab, the supply trickle from the time-to-barrels waterfall).

How to read it: this is the walk-forward of scenario A persisting — not a forecast, and not the base case (the market priced ~25% odds of persistence into Q4 as of the Jul 16 strip; chips above). The four-year lesson compressed into one strip: the first six months are paid for by buffers, the second six by decree, the third by recession — and the fork at the end is the only place a supply answer reappears. Chapters and corridor are generated from the closure-scenario price rows directly, so the bands cannot drift.

The switching map: every fuel in $/MMBtu — where LNG and coal beat oil (late July 2026; individual prints Jul 7–22)

So what — oil-equivalent back ≈1.0–1.2 mb/d-e via gas-to-coal, available in months — the one big fast lever (55–65 bcm/yr IEA potential; caps and bans already lifted across Asia, ~1.8 bcm realized by June). Gas-to-oil switching runs the other way — it adds up to a few hundred kb/d of oil demand while Brent sits below the ~$102 JKM crossover. And LNG can't fill in from elsewhere: the non-Gulf ramp is already spent (+27 bcm Mar–Jun ≈ 0.5 mb/d-e, covering ~¾ of the Gulf hole) and the next real increment — the 2027–28 wave, ~+50 bcm/yr ≈ 0.9 mb/d-e — arrives after this war, not during it.

Wells back in the black: WTI breakevens vs the price (survey averages, $/bbl)

So what — barrels back ≈+0.1 mb/d in weeks (DUCs) · +0.25–0.5 mb/d by end-2027 — at $100 or at $150 — price stopped being the constraint at ~$70; capital discipline, record-low DUCs, and a strip capped by the 2027-surplus outlook are. Nothing is shut in waiting for higher prices (everything produces above ~$50), so "back in the black" buys ~0 extra barrels.

The "back in the black" margin is the wrong margin. Dallas Fed: "All respondents can cover operating expenses for existing wells at current prices" — WTI bottomed at $55.44 (Dec 16, 2025) and spent only ~3 weeks below $58 in 2025–26, still far above every opex floor, so there is no meaningful shut-in inventory waiting on price (the ~420k stripper wells producing ~915 kb/d stayed on throughout; the channel is worth tens of kb/d at most). The margin that matters is new drilling ($62–70, up 30–40% from 2020 on cost re-inflation), and it was crossed in March — what follows is what producers did with it.

…and how many barrels the price signal actually buys (incremental US supply, mb/d)

Survey rows are producers' own modal answers (Dallas Fed, 120–125 firms); model rows are Rystad scenarios. The observed 2026 record matches the low rows: WTI spent 43 of 51 post-escalation trading days above $90 (16 above $100) while the Kayrros satellite rig count fell 534 → 462 (Jan–Apr; Baker Hughes flat ~543–545) — 2026 budgets were built at $55–60 and the spike was read as temporary. Rigs turned only when the strip validated ~$75–80: +45 rigs (+8%) in six weeks from mid-June (588 on Jul 17, +44 y/y), right at the KC Fed's $83 "substantial increase" threshold and the classic 4–6-month lag. The DUC cushion that bridged the gap is at a record low (4,972 in April, lowest since records began in 2013). The cash went to owners: at $100 avg WTI, ~$63 bn of extra 2026 shale FCF (Rystad) earmarked for payouts and debt — Dallas Fed Q2 "expected capex next year" index: 0.0. Non-US short cycle is slower still: oil sands ~1 mb/d over ~7 years, Vaca Muerta infrastructure-paced (records now, >1 mb/d only by 2030). Above ~$70 the global cost curve stops binding at all (Rystad avg new-project breakeven $47) — capital allocation, service capacity, and lead time bind instead. Data: the Dallas Fed and KC Fed energy surveys and Rystad scenarios, linked below.

OPEC+: quota theater vs deliverable barrels (mb/d)

So what — barrels back 0.02 mb/d (what's actually spare) to ~1.5–2 mb/d (only if it can reach water) — higher prices change OPEC+'s press releases, not its deliveries: the cadence is pre-planned, the spare is behind the strait, and the fast rungs (Petroline surge, ADCOP) were pulled in March. Nothing new arrives at the margin until transit clears — at which point the 2027 surplus, not scarcity, becomes the problem.

The two smallest rows are the point: the world's shock absorber sat inside the chokepoint that failed. EIA surplus capacity (Table 3d) collapses from 3.0–3.6 mb/d a year earlier (3.9 in early 2025) to 0.02 mb/d for Q2–Q4 2026, recovering to ~2.4 only in 2027; the IEA's March estimate of effective spare — a different estimator, shown separately, never blended — fell 3.6 mb/d in one month to 0.32, the lowest on record. What can move outside the strait is Petroline/Yanbu headroom (record ~7 mb/d throughput; ~5 claimed exportable but Yanbu had rarely loaded >2.5 — chartering binds) plus ADCOP's 1.8 — and the UAE took ADCOP out of OPEC on May 1. Quarterly series in the table below.

The reaction function: what OPEC+ actually did at each price

Five consecutive pre-planned hikes straight through a $126.41 intraday peak and back to $72 — the same reaction function as March 2022 (a <15-minute meeting approving the pre-planned +400 kb/d at $120+ Brent): OPEC+ sells insurance against physical shortage, never against risk premium. And 2026's physical shortage is one it cannot serve — the historical templates (2004–08: produced flat-out, no cushion left, price found $147; 2011 Libya: Saudi went it alone +700 kb/d while the IEA bridged with 60 Mb) both required barrels that could reach water. This time consumer stocks did the work again (252 Mb delivered by Jun 12). What to watch: the Aug 2 meeting; a September tranche completes the 1.65 mb/d unwind, and analysts flag the next layer — the 2.0 mb/d Oct-2022 group cut — from as early as October. All of it paper until the strait clears; and the flip side caps the upside: IEA's July balances imply a ~5 mb/d surplus in 2027 if transit normalizes, which is what pins Dec-27 futures near $78 and, via the strip, keeps the shale response asleep. Keyed per row; sources linked below the table.

Open everything? The frontier scorecard — and every lever on one chart

So what — barrels back ≈0 mb/d before 2030 from frontier acreage — the experiment already ran, mid-war — ANWR's June 5 lease sale, held with Brent in the $90s–100s under mandated-sale law and 28-day permitting, drew $3.7M and zero majors. Even a funded ANWR is first oil ~10 years after leasing, peaking ~880 kb/d in the 2040s (EIA's own model). With >7,500 approved federal permits already sitting unused, acreage was never the constraint — capital, whipsaw risk, and the strip are.

The revealed preference is precise: industry paid a record $164.7M for NPR-A acreage next to existing roads and pipe in March — and eleven weeks later paid just $3.7M for ANWR-adjacent frontier — and even those NPR-A barrels are a 2030s story (Willow, fully supported and half-built, runs FID Dec 2023 → first oil early 2029 → 180 kb/d). Where policy did deliver barrels in months: the Venezuela licenses (GL 49/50, Feb 13; amended to GL 50A Feb 18) restored output to ~1.07 mb/d by May, because the capacity already existed and was merely switched off — the general rule of every row below.

Time to barrels, next four years: the cumulative track — and the buffer dropping out

The demand waterfall: where 1.4 mb/d of 2026 demand went (change vs the pre-war forecast, mb/d)

So what — oil not burned −1.37 mb/d on the 2026 average — half of it invisible (idle crackers), and the cheap half is already spent — the elastic channels fired first; if scenario A persists past the SPR cliff, the next ~3–8 mb/d (the scenario-A uncovered gap once the release leg ends, mid 6.4 — author scenario, Closure scenarios tab) must come from deeper rationing or recession, which is why the fitted price curve steepens as buffers empty.

Where it landed: the same loss, three lived experiences

One color per experience — the tile borders reuse the report's status colors: red = rationed by decree or absence, amber = industry shut on margin (or, for Saudi, on lost gas), green = merely trimmed by price. Bases are mixed by necessity — each tile states its own (April y/y deliveries, quarterly averages, or 2026 forecast deltas).

The grid is the euphemism argument in miniature: the deepest percentage cuts sit in countries that produce no oil and set no prices — while the world's largest consumer shows up in green. Each tile links its sources.

Three mechanisms, one label — and what snaps back

So what — reversibility Most of it reverts when supply does; ~0.5–0.9 mb/d never comes back — the IEA already pencils demand +8 mb/d off the May low by October and +2.0 mb/d in 2027. What's permanent: the EV pull-forward (China's fleet alone displaces 540 kb/d of 2026 gasoline) and the two-year path netting ~0.7–0.9 mb/d below the pre-war trend. What's not even destruction: China's import collapse (−3.6 mb/d Feb→Apr) was mostly stock-financed deferral — it returns as the 2027 restocking bid.

The distributional reading is the ugly one: the market cleared by poverty and idle factories, not rich-world inconvenience — import-dependent South Asia took rationing (a supply constraint wearing a demand label) while US drivers trimmed 3%. Only ~25–30% of global gasoline/gasoil demand sees full market price pass-through (IEA), so the price mechanism reaches far less demand than a textbook assumes; the rest adjusts through subsidy budgets, FX crises, and queues. Sources per row are linked below the table.

Second-order: the fertilizer → food transmission (the shock that lags a season)

So what — food An affordability squeeze so far, not a food-price crisis — the test window is Oct 2026–2027 harvests — urea more than doubled ($400 → >$850 at the April peak; India's record tender hit $935/t, ~86% above its February basis per AMIS) then halved as China reopened exports and Saudi rerouted via the Red Sea; FAO's food index sits at 130 vs 160 at the 2022 peak. But fertilizer works on planting calendars: if round two runs through the autumn, India's rabi top-dressing (Nov–Jan), Brazil's September window (~30% covered) and East Africa's next planting take the yield hit into 2027.

Why it retraced — and why the risk window is still open: the Hormuz strait carries over a third of world urea trade; QAFCO's 5.6 Mt/yr plant (14% of traded urea) shut March 4 and Iran — the world's #3 urea exporter — idled all seven complexes. Prices halved anyway because China reopened urea exports (1.5–1.6 Mt Jun–Aug quotas, $660–670/t floor), SABIC loaded its first-ever Red Sea urea cargo at Yanbu, four India-bound ships cleared the strait, and the northern-hemisphere season ended. Every one of those reliefs is fragile: the China window closes after August (the quota is only 1.5–1.6 Mt), Yanbu is the same Red Sea chokepoint the tanker war threatens, and the farmdoc extended-conflict scenario has US urea peaking near $996/st in October — right at the fall-application and rabi windows. The 2022 template for pass-through: IMF put a 10% fertilizer rise at ~7% on cereal prices after one quarter; the 2026 cascade so far is in inputs (Russia/Türkiye sulphur bans, China sulphuric-acid ban), not yet a 2022-style food-export ban cascade — the thing to watch for. Keyed with a linked source per anchor (table above); two low-confidence secondary figures are excluded.