The US Energy Information Administration (EIA) raised its Brent crude oil price forecast for 2026 to $87 per barrel on August 11, an increase of $5 from its July estimate, citing continued constraints on shipping through the Strait of Hormuz that are disrupting oil production in the Middle East. The Strait of Hormuz, located between Oman and Iran, is one of the world's most critical oil transit chokepoints, normally carrying roughly one-fifth of global oil consumption. Brent crude serves as the pricing benchmark for approximately two-thirds of the world's internationally traded crude oil supplies.

In its Short-Term Energy Outlook (STEO), a monthly publication providing near-term energy market projections, the EIA stated: "We have increased our estimates of Middle East shut-in crude oil production in the coming months compared with our July forecast due to continued severe constraints on Strait of Hormuz transits, which we assume persist through August."

Strait of Hormuz Traffic Declines Sharply

Crude oil and petroleum liquids shipped through the Strait of Hormuz averaged 4.9 million barrels per day (b/d) in the second quarter of 2026, a steep drop from the 21.6 million b/d average recorded in the fourth quarter of 2025. Production shut-ins averaged 5.5 million b/d in July, down from an estimated 7.5 million b/d in June and an average of 10.1 million b/d between March and May.

Meanwhile, flows of crude and petroleum liquids through the Bab al-Mandab Strait rose to an average of 8.1 million b/d in the second quarter of 2026, up from 5.4 million b/d in the fourth quarter of 2025. The EIA attributed this shift to Saudi Arabia re-routing crude oil away from the Strait of Hormuz through the East-West pipeline to the port of Yanbu on the Red Sea. The East-West pipeline, also known as the Petroline, runs approximately 1,200 kilometers from Saudi Arabia's eastern oil fields to the Red Sea coast, providing one of the few overland alternatives to maritime transit through Hormuz.

"We do not assume that the recent threats to ships transporting Saudi Arabian crude oil through the Bab al-Mandab Strait have resulted in any additional shut-ins of crude oil production," the outlook noted.

The EIA expects most crude oil production in the region to return to near pre-conflict averages in early 2027, which would lead the Brent spot price to gradually decline to an average of $69 per barrel in 2027.

US Production and Inventories

US crude oil production is projected to average 13.8 million b/d in 2026, an upward revision of 20,000 b/d from the July estimate. In 2027, US crude output is forecast to average 14.15 million b/d, up 120,000 b/d from last month's outlook. The United States has been the world's largest crude oil producer since 2018, and these projections would maintain that position.

US commercial crude oil inventories are expected to remain below the five-year low through the end of 2026. "Increased crude oil exports, reduced imports, and high refinery runs since mid-April have led to consistent weekly declines in crude oil stocks," the EIA said.

High crack spreads through the end of 2026 are expected to sustain elevated crude oil inputs to refineries. Through the first seven months of the year, crude oil inputs to US refineries have reached their highest levels since 2019.

Global Refining and Fuel Prices

Tighter global refined products market conditions are anticipated to bolster US refinery margins through year-end. "Lower refined product exports from Russia, the resumption of the conflict around the Strait of Hormuz (limiting the flow of products from refineries in Saudi Arabia and Kuwait), and reduced crude runs through the refineries in China have all contributed to lower global refining activity," the EIA stated. The reduction in Russian refined product exports follows earlier sanctions and infrastructure constraints that have curtailed Moscow's downstream sector.

On the retail side, gasoline is projected to average $3.78 per gallon in 2026, an increase of 14 cents from the July outlook. Diesel is forecast to average $4.85 per gallon in 2026, up 24 cents from the previous month's estimate.

Source: Platts (S&P Global)