Brent crude oil climbed to $91.28 per barrel on August 19, extending a four-day winning streak, as diplomatic efforts to reopen the Strait of Hormuz collapsed and Gulf production remained shut in at levels not seen since the early days of the US-Iran conflict.
West Texas Intermediate traded at $85.31, up 0.43% on the day, as markets priced in the possibility that the world’s most critical oil transit chokepoint could remain restricted well into autumn. The rally lifted Brent to its highest level since mid-July, when a brief ceasefire had briefly brought prices down toward $77.
Stalemate as Both Sides Dig In
US President Donald Trump on August 18 demanded that Iran surrender while threatening to strike Oman if it interfered with naval operations, while Tehran accused Washington of begging to negotiate after failing to force capitulation. Secretary of State Marco Rubio met UAE President Mohamed bin Zayed on the same day to discuss Hormuz security, but no breakthrough was reported.
The diplomatic impasse has left the Strait of Hormuz, which normally carries roughly 20 million barrels of crude oil and petroleum products per day, operating at a fraction of pre-war capacity. Traffic through the waterway has repeatedly been halted by Iranian naval patrols, Houthi attacks, and US military strikes, with tanker insurance premiums surging as a result.
Gulf Output Remains Severely Curtailed
According to the IEA’s August Oil Market Report, published on August 12, global oil supply is projected to decline by 4.3 million barrels per day on average in 2026, with 8.3 million barrels per day of production still shut down across the Gulf region. The agency cut its 2026 demand forecast by an additional 510,000 barrels per day, reflecting the damage that high fuel prices are inflicting on consumption.
Goldman Sachs analysts warned that Brent could surpass $120 per barrel in the fourth quarter if Hormuz flows remain disrupted and Gulf output only fully recovers by the end of 2027. Their base case forecast of $80 for Q4 and $75 for 2027 assumed a faster resolution that now appears unlikely.
Renewed hostilities and maritime disruptions in July and early August undermined the recovery efforts, reducing projected third-quarter 2026 oil supply by 1.7 million b/d compared with last month’s report.
The IEA noted that the worst of the demand destruction may have passed, with May’s 5.8 million barrels per day year-on-year decline likely marking the nadir. Still, the agency warned that previously available inventory buffers are rapidly depleting, with globally observed crude inventories standing slightly below 7.9 billion barrels, down 410 million barrels since the conflict began.
OPEC-plus producers have agreed to raise output by 188,000 barrels per day from August, but the increase is largely symbolic given that most Gulf members cannot physically deliver additional barrels while the strait remains blocked. Saudi Arabia, Iraq, and Kuwait all have export capacity constrained by the maritime disruption, meaning the announced quota increase does not translate into additional barrels reaching consuming markets. With the conflict entering its sixth month and no ceasefire in sight, the oil market faces a prolonged period of elevated prices and tight physical supply.
Sources: IEA Oil Market Report (August 12, 2026); Goldman Sachs; OPEC Secretariat; Bloomberg; Sprague Energy market analysis
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