Oil Prices Surge Again as Iran-Israel Strikes Resume

Global oil prices rebounded on Monday, with Brent crude advancing to US$96.05/b and WTI to US$93.67/b, following a weekend exchange of missile strikes between Iran and Israel that disrupted a fragile ceasefire. While OPEC+ approved a production quota increase and reduced Chinese imports have provided structural buffers, the renewed conflict directly pressures global inventory forecasts and maintains high market volatility. For Mexico, while these elevated international benchmarks keep actual export prices well above the government's revised US$77.3/b fiscal reference price, the potential revenue windfall remains heavily restricted by PEMEX's declining export volumes and the escalating cost of the domestic IEPS pump-price subsidy.

Oil prices rebounded on Monday after Iran and Israel exchanged missile strikes over the weekend, undermining a fragile ceasefire that had been driving prices lower for most of May. Brent crude futures for July advanced 3.18%/b to US$96.05/b, while WTI futures for August gained 3.46% to US$93.67/b. The session opened with Brent briefly crossing US$98/b before easing as diplomatic signals emerged from Washington.

Iran launched drones and missiles during the weekend in what represented the first direct strikes between the two parties since the early April ceasefire. The Israeli Air Force hit military targets in western and central Iran in response. President Trump, who had brokered the April ceasefire, told Fox News on Sunday that the attacks were "certainly not going to help negotiations," while the White House confirmed it had briefed the president on developments.

Where Prices Stand and How They Got Here

Having peaked at levels where dated Brent spot cargo was trading above US$120/b in early April, reflecting the near-complete shutdown of Strait of Hormuz tanker traffic, global benchmarks had fallen almost 19% through May as investors priced in the prospect of a durable ceasefire and the gradual restoration of Gulf oil flows.

The gap between spot cargo prices and futures had widened significantly: even as Brent June futures closed at US$94.75/b in April, spot prices for actual cargo were trading nearly US$30 higher, reflecting the physical reality that tanker traffic through the Strait remained almost entirely shut.

OPEC+ Adds Supply Into a Disrupted Market

OPEC+ approved another increase in July oil production quotas of 188Mb/d, despite persistent supply risks from Middle East tensions. The move reflects the cartel's calculation that the diplomatic trajectory points toward a ceasefire and Hormuz reopening, a bet that Monday's missile exchange puts under immediate pressure.

Fresh data indicating an aggressive pullback in Chinese oil imports has also limited supply pressures, as Asia's largest consumer has been drawing down inventory rather than sourcing from overseas since the start of the conflict. China's inventory-drawdown strategy has provided a structural buffer against the worst-case supply shock scenarios, but that buffer has limits, and extended Hormuz closure would eventually force Asian buyers back into a market with severely constrained supply.

The EIA's most recent Short-Term Energy Outlook estimated that global oil inventories would fall by an average of 8.5MMb/d in 2Q26, with Brent crude averaging approximately US$106/b in May and June. Monday's session suggests that forecast, already issued under conditions of ceasefire optimism, may prove conservative if the weekend's exchanges signal a broader escalation.

Mexico's Fiscal Position in a Volatile Price Environment

The country's 2026 budget was constructed on a US$54.9/b reference price for the Mexican Mix. The SHCP's April Pre-Criterios 2027 already revised that assumption upward by 40.8% to US$77.3/b, reflecting the Iran conflict's persistence. Actual export prices have traded well above that revised estimate through most of the second quarter.

The fiscal benefit, however, continues to be structurally limited by PEMEX's declining export volumes. April exports averaged just 418.2Mb/d, approximately 20% below the SHCP's 521Mb/d target, as the administration's refinery-first policy redirects crude toward domestic processing. At elevated prices, fewer barrels means the potential windfall is only partially captured.

The IEPS fuel subsidy mechanism runs in the opposite direction. Goldman Sachs warned that easily accessible buffers of refined products are being depleted rapidly, particularly in petrochemical feedstocks such as naphtha and LPG, as well as jet fuel, raising concerns about localized shortages if the disruption extends further. In Mexico, rising refined product import costs filter through to the IEPS framework, where the government absorbs the price difference between international and domestic pump prices, a mechanism that costs approximately MX$2.5 billion per week and which expands with every dollar gain in international benchmarks.