The latest "Short-Term Energy Outlook" by EIA sends the strongest signal to the global oil market, which isn't simply an adjustment in oil prices, but rather that the cushion of inventories is rapidly thinning. On April 7, the agency stated that as the conflict in Iran persists beyond previous assumptions and the closure of the Strait of Hormuz extends, the scale of Middle Eastern crude production halts is significantly expanding, and the global inventory drawdown is notably faster than anticipated last month. In EIA's latest baseline scenario, global oil inventories will decrease by an average of 5.1 million barrels per day in the second quarter of 2026, which effectively pulls the previously relatively loose market balance back into a high-volatility, low-buffer state of tension.
Oil Price Path
Under this assumption, EIA has significantly revised the forecast for Brent crude oil prices upward from a more moderate range. Official estimates suggest Brent will rise from an average of $81 in the first quarter of 2026 to a peak of $115 in the second quarter, then gradually decline back to $88 by the fourth quarter as production interruptions slowly ease and shipping gradually recovers. Even by 2027, the average price is still expected to reach $76, about $23 higher than the February version of the STEO. EIA's explanation is clear: even if the Strait reopens for passage, it will still take time to absorb rerouted tankers, port backlogs, and trade flow rearrangements. The risk of future supply interruptions will keep the risk premium embedded in oil prices for a longer time.
Production Halts and Demand
Supply-side shocks remain the core of this forecast revision. EIA estimates that the combined scale of production halts in Iraq, Saudi Arabia, Kuwait, the UAE, Qatar, and Bahrain was 7.5 million barrels per day in March, rising to 9.1 million barrels per day in April, before gradually receding. Meanwhile, as Asia's dependence on Middle Eastern crude is higher, EIA has also simultaneously revised down the demand-side assessment, halving the anticipated growth in global oil demand for 2026 from a daily average of 1.2 million barrels to 600,000 barrels, only rebounding to 106.2 million barrels per day in 2027. In other words, the report does not depict "strong demand driving up oil prices" but rather "supply disruption compressing inventories, then forcing demand reduction through higher prices."
Why Ceasefire Hasn't Quickly Lowered Risk Premiums
The reality of the market confirms this point. Despite Trump's announcement of a two-week ceasefire with Iran, which momentarily pushed Brent and WTI prices below $100, Reuters later reported that the Strait of Hormuz remains nearly paralyzed, with Iran still requiring ships to sail under its control, and only six vessels having passed through in the past 24 hours. Concurrently, the Lebanese front is not included in the ceasefire deal, with Israeli airstrikes continuing. For crude oil traders, this implies that the ceasefire is more of a "pause of the worst scenario" rather than a "return to normal supply."
Divergence in U.S. Refined Products
EIA's assessment of the U.S. refined products market shows clearer divergence. The agency projects that in April, U.S. retail gasoline prices will be close to $4.30 per gallon, with diesel prices exceeding $5.80 per gallon. Over the year, the average gasoline price is expected to be $3.70 in 2026 and $3.46 in 2027, higher than $3.10 in 2025; diesel prices are projected at $4.80 and $4.11, respectively, also above $3.66 in 2025. The reason is that overall U.S. gasoline inventories remain at average or slightly higher levels, keeping profit pressures relatively limited, but the distillate oil market corresponding to diesel is still hampered by tight global supplies, and EIA predicts U.S. distillate oil inventories will remain below the five-year average from 2021 to 2025 throughout the forecast period.
Market Implications
Therefore, what this STEO truly changes is not just the price center for the coming quarters, but also the global oil market's perception of "whether inventories are sufficient to absorb geopolitical shocks." As long as the restoration pace of the Strait of Hormuz remains slower than expected and Middle Eastern energy facility shutdowns or shipping restrictions continue to recur, oil prices are unlikely to quickly revert to pre-war levels. On a macro level, this means that energy inflation will not automatically disappear with ceasefire headlines but is likely to continue transmitting through transportation, chemical, and manufacturing costs along the global inflation chain.
