Energy Indicators

Global energy markets are still facing increased volatility and uncertainty in 2026 since the beginning of the conflict with Iran. Crude prices have been pushed up due to supply constraints related to the closure of the strait of Hormuz. Elevated crude prices have transmitted downstream into higher fuel prices. At the same time, unplanned refinery outages tied to the wars in Iran and Russia are adding additional pressure to fuel prices.

Historical oil inventories and prices

Crude and natural gas prices diverge

Crude oil prices have risen significantly this year (Chart 1). The inflation adjusted price of West Texas Intermediate (WTI) in the Perman region, where 48 percent of U.S. crude is produced rose to an average of $94 dollars per barrel in the second quarter, up 27 percent from the first quarter. From July 1 to August 8, WTI averaged about $79 per barrel.

Conversely, the price of natural gas in the Permian (Waha) declined since the start of the conflict. The real average price in second quarter 2026 was -$17 per barrel of oil equivalent, down 108 percent from the first quarter. Pipeline capacity for natural gas in the Permian is severely limited, and many producers pay extra to find somewhere to put the natural gas that comes out of both oil and gas wells in the region. As productivity gains and higher oil prices raise oil production, the associated increase in natural gas supply pressures Waha prices into deeper negative territory.

After recovering from late-January freeze-offs, Permian basin output has increased little. In total, the United States produced 13.8 million barrels per day (mb/d) on average in second quarter 2026. An average of several projections put U.S. crude and condensate output inching up to just under 14 mb/d through the end of 2027.

OECD liquid stocks drawing down

Oil inventories for Organization for Economic Cooperation and Development (OECD) countries had stabilized in 2023 near 3.2 billion barrels after releases from the Strategic Petroleum Reserve (SPR), a response to sanctions on Russian crude after the invasion of Ukraine, came to an end. Despite a partial recovery in 2025 driven mainly by increased non-OPEC+ production and higher regional imports, total OECD petroleum stocks were structurally tighter when compared to prepandemic levels in the first three months of 2026 (Chart 2).

When the strait of Hormuz was functionally closed to traffic in March, floating storage (on sanctioned tankers), commercial and strategic petroleum stocks began to draw down. The most recent comprehensive OECD data for May show inventories in the U.S. and OECD countries at 10-year lows near 5.1 billion barrels.

Data for the United States since May indicate further declines, with total petroleum stocks for the U.S. stabilizing between mid-June and July after the partial reopening of the Strait of Hormuz. However, traffic through the strait is once again restricted, as the ongoing conflict and heightened uncertainty temper the willingness of many shippers—and their insurers—to hazard a crossing. At the beginning of August, the U.S. had 1.53 billion barrels of crude oil and petroleum products in stock, including the SPR. This is down 178 million barrels compared to the start of the year, when crude oil and petroleum in stock sat at 1.71 billion barrels.

Refinery margins and global product prices

Refinery margins see spike in gains

The Brent 5:3:2 crack spread was up $35 from the beginning of March at $67 for the week of July 31, a 109.2 percent increase. The West Texas Intermediate (WTI) 5:3:2 crack spread was up $36 over the same period, a 122 percent increase (Chart 3).

Crack spreads, the difference between the price of crude and refined products, are a proxy for refiner profitability. The 5:3:2 crack is an output ratio that means for every five barrels of crude, the refinery makes three barrels of gasoline and two barrels of distillate. Higher spreads signal refiners to increase output and can incentivize firms to shift the crack ratio from one product to another, though the technical capacity to do that is limited.

Crack spreads were already elevated in 2025 due in part to Ukraine attacks on Russian infrastructure and international sanctions, particularly for diesel, jet fuel and other distillates. Approximately 5 mb/d of refined product had transited the Strait of Hormuz in 2025, and there is comparatively little capacity to reroute fuels versus oils. In addition to those lost fuel supplies, China restricted exports of refined products, cutting off much of global surplus refining capacity. China partially relaxed fuel export bans in July, but Russian exports were then curtailed after a step up in Ukraine attacks shut down as much as 2 mb/d of Russian crude processing.

The nature of the damage to global refining and processing infrastructure from recent events is not clear, and repairs could take anywhere from a month to over a year depending on what parts were damaged and how severely. When a refinery is taken offline and there is insufficient spare capacity to replace it, the outage lowers the supply of products, putting upward pressure on fuel prices, all else held equal. However, in that scenario, refinery outages would also lower oil consumption, putting downward pressure on crude prices and widening crack spreads. This can be true even when both crude oil and product prices are falling.

Global products prices ease

Global prices for diesel, gasoline and jet fuel have spiked in recent months following the onset of the geopolitical conflict in Iran (Chart 4). Prices initially rose in the first quarter but eased mid-year when traffic through the Strait of Hormuz was partially restored.

U.S. products exports

U.S. crude exports surge

Exports of petroleum products increased to 7.6 mb/d in June from 6.9 mb/d a year ago (up 8.9 percent) slowing only slightly as the summer has worn on (Chart 5). While U.S. refineries are running hard at more than 95 percent utilization, with over 97 percent utilization on the U.S. Gulf Coast, this was largely already the case before Iran war. This meant there was relatively little idle refining capacity to ramp up when prices rose, so the increase in exports pulled from domestic inventories.

Similarly, U.S exports of crude oil increased 25.4 percent year over year in June from about 3.6 mb/d to 4.5 mb/d, before retreating mid-summer to 3.6 mb/d. Rather than prompted by increased production, as shown in Chart 1, the rise was driven mainly by releases of crude oil from the SPR into a domestic refining market that was already operating near maximum sustainable capacity (Chart 5).