CICC: If Hormuz Stalls Again, Oil Prices Face Short-Term Spike Amid Demand Constraints
Taylor Wilson
The Strait of Hormuz has shut down again after a brief reopening, pushing Brent back toward $90/bbl; CICC warns depleted inventories amplify the spike risk, but global demand — down nearly 4 million bpd year-on-year — will cap how long prices can stay elevated.
Why is this shutdown worse than February's?
After Iran attacked a merchant vessel in early July and the U.S.–Iran conflict escalated fully, Hormuz tanker traffic has fallen to less than 10% of normal — far worse than the first closure in February.
Gulf oil exports had briefly recovered to 16.1 million bpd in June (about 65% of normal), but the window was short-lived — pre-shutdown exports were still 8–9 million bpd below February levels.
This means → the starting point is lower this time, so the drop in arrivals will hit faster and harder than the previous round.
How much inventory buffer is left?
By end-Q2, OECD oil inventories had swung from -1% below the five-year average in late February to -8% below it — a drawdown of nearly 300 million barrels, of which 200 million came from coordinated strategic petroleum reserve (SPR) releases.
Cushing, Oklahoma — the physical delivery point for WTI pricing — has hit historic lows; the spot discount has essentially closed. In plain terms = the tanks that could be emptied have been emptied.
CICC expects SPR releases to wind down by Q3. If the strait stays blocked, drawdown pressure shifts to commercial stocks and Eurasian inventories, amplifying short-term price swings further.
What is happening on the demand side — and why does it cap prices?
IEA data show global oil demand fell nearly 4 million bpd year-on-year in Q2 2026 — every major region except the U.S. is now contracting.
The deepest cuts are in Asia: Japan, South Korea, and China are down 10–20% year-on-year; OECD Europe is down about 5.6%. The U.S. posted roughly 2.7% growth in Q2 but has started to contract since July.
This means → the higher prices spike, the deeper demand falls — a negative feedback loop that limits how long oil can stay elevated. Crude spot premiums have stayed subdued even after the strait re-closed, an early sign of demand fatigue.
How is supply recovery progressing in the Middle East and Russia?
Gulf-state crude output rose about 3.13 million bpd month-on-month in June, cutting the damage ratio from 45% in May to 32%. But with geopolitical tensions flaring again, the recovery timeline is likely pushed back. CICC notes Qatar's LNG plant flows remain depressed; damaged refineries and liquefaction units need longer repairs.
The Russia–Ukraine conflict has hammered Russian refining: June crude processing fell to 3.8 million bpd and product exports to 1.9 million bpd — both down roughly 30% year-on-year. Affected refining capacity now exceeds 70% of Russia's total.
This means → Russia has already imposed phased export bans on gasoline, jet fuel, and diesel; it may soon need to import refined products to meet domestic demand. This reflects a deepening global mismatch in medium-heavy sour products — diesel, fuel oil — creating further upside risk for Eurasian product prices and crack spreads.
Two competing forces — where does oil go from here?
CICC's core framework: depleted inventories amplify short-term price elasticity vs. sustained demand weakness caps how long prices stay high — the two forces check each other.
CICC maintains its Q3 2026 Brent central forecast of $90/bbl, with elevated spike risk in the near term but demand-driven pullbacks thereafter.
In plain terms = oil can still surge in the short run, but the global economy is voting with its feet — buying less — and prices ultimately cannot hold. Whether strait traffic resumes is the key test of this thesis.
Content is for reference only, not financial advice.