Summary of Oil Market Disruption and Demand Destruction

Author: Ole Hansen, Head of Commodity Strategy

Date: April 22, 2026

Key Points

• Oil prices are experiencing volatility due to conflicting headlines and a lack of trust between Tehran and Washington.
• The closure of the Strait of Hormuz is causing significant disruptions in oil supply.
• Demand destruction, estimated at around 5 million barrels per day (mb/d), along with China's inventory drawdowns, is currently masking supply losses.
• Any potential reopening of the Strait will be gradual, with logistical challenges and refinery damage likely to keep refined markets tight.

Market Dynamics

Oil prices have been fluctuating, with Brent crude remaining below USD 100. This is attributed to the extension of a ceasefire by former President Trump, despite ongoing tensions and stalled peace talks due to Iran's refusal to negotiate under the current U.S. naval blockade. The market is facing a severe disruption in oil flows, particularly with the Strait of Hormuz effectively closed.

The ongoing conflict has led to a deep mistrust between the U.S. and Iran, resulting in a market that is highly reactive to news and speculation. This uncertainty is detrimental to market stability, as optimism can quickly dissipate without concrete actions to support it.

Demand Destruction and Supply Losses

According to Vitol, the rise in oil prices has led to a significant reduction in demand, particularly in Asia, where approximately 5 mb/d of demand destruction has occurred. China, the largest crude importer, has reduced its seaborne purchases and is actively reselling barrels from its strategic reserves, which are estimated to be around 1–1.2 billion barrels. This has temporarily alleviated the pressure on prices despite the ongoing supply disruptions.

Future Outlook

The key question remains regarding the future of oil supply and prices. Even if the Strait of Hormuz reopens, restoring normal supply flows will be complicated by logistical bottlenecks and the need to assess and repair refinery infrastructure. The market could see a tighter situation than before the conflict, potentially raising the price floor of crude oil by USD 10-15.

Refined products, including diesel and jet fuel, are expected to remain in tight supply, with jet fuel prices having more than doubled since the onset of the conflict. Airlines are already feeling the impact, with Lufthansa planning to cancel around 20,000 flights to save costs amid soaring fuel prices.

Political Considerations

The political landscape in Iran is complex, with the Supreme Leader holding ultimate authority. However, hardline factions within the Islamic Revolutionary Guard Corps (IRGC) are increasingly influencing operational decisions, particularly regarding the Strait of Hormuz. This complicates negotiations with external parties, as any agreements must align with the Supreme Leader's directives and the IRGC's stance.

Conclusion

The oil market remains under significant strain, with demand destruction temporarily masking the severity of supply losses. Logistical challenges and refinery disruptions are likely to continue, suggesting that the market will face ongoing tightness in refined products. The longer a peace deal remains elusive, the greater the risk of renewed upward pressure on prices.