Key insights
- Oil prices are holding steady due to Middle East tensions and shrinking global inventories. The IEA reports record inventory declines and anticipates a severely undersupplied market until October. While distillate inventories in the US saw a small increase, crude stockpiles fell significantly. Disruption of Iranian oil shipments adds to supply concerns, potentially impacting energy prices and contributing to inflationary pressures in the US.
(Bloomberg) -- Oil largely held its 8% surge over the past three sessions as Middle East tensions simmer and global stockpiles shrink at a record pace.
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Brent crude traded near $107 a barrel after the International Energy Agency said global observed oil inventories declined at a rate of about 4 million barrels a day in March and April. Saudi Arabia told OPEC that its output sank to the lowest level since 1990.
The Middle East conflict has thrown energy markets into disarray, with refineries in Asian nations such as Japan scrambling for alternatives to supplies from the Persian Gulf. The Strait of Hormuz, which links the Gulf to open seas, has been effectively closed since the war began, and a US blockade has added another sticking point in efforts to end the conflict.
“With global oil inventories already drawing at a record clip, further price volatility appears likely ahead of the peak summer demand period,” the Paris-based IEA said in its Oil Market Report. The market will remain “severely undersupplied” until October even if the conflict ends next month, the agency said.
Prices eased slightly after a US government report showed that distillate inventories grew last week for the first time since March. Though the build was relatively small at 190,000 barrels, it allayed fears that the West’s supply cushion is reaching its limits. Crude stockpiles slid by 4.3 million barrels, however, nearly twice the figure projected by a widely followed industry group.
Meanwhile, oil shipments from Iran’s main export terminal appear to have come to a standstill over the past several days, in the first sign of a prolonged halt since the start of the war.
US President Donald Trump downplayed the amount of attention the Iran conflict would get during his summit with Chinese counterpart Xi Jinping, saying “we have Iran very much under control.” But American gasoline prices have surged to the highest since 2022, a politically sensitive development ahead of crucial midterm elections in November.
In another sign of wider strain, Vietnam’s state oil company has urged the US to let a supertanker laden with crude pass through its naval blockade outside the Persian Gulf, saying the shipment is vital to its economy. The vessel crossed Hormuz but U-turned on Monday near the cordon.
--With assistance from Yongchang Chin.
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