Oil Trades Near US$89/b Amid Hormuz Transit Drop

The conflict in the Middle East continues to impact global oil prices. Recent attacks on ships in the region have sustained prices near US$89/b, as an impasse in negotiations over the Strait of Hormuz offsets lowered global demand forecasts. This geopolitical shock accelerates an underlying supply bottleneck caused by a 10-year deficit in long-cycle exploration investment, industry insiders point out. 

Brent futures settled at US$89.53 a barrel, up 24% since the start of the US-Israel conflict with Iran, as reported by Al Jazeera. West Texas Intermediate traded at US$83.27 a barrel, as reported by Reuters.

Vessel transits through the Strait of Hormuz, a route that carried one-fifth of global oil supply before the conflict, dropped from pre-conflict averages of 125 to 140 daily transits down to 8 to 10 vessels per day, according to shipping data cited by Reuters and Al Jazeera. Negotiations to reopen the waterway remain without agreement between Washington and Tehran.

Simultaneously, OPEC and the International Energy Agency (IEA) lowered their market outlooks. OPEC reduced its 2026 global demand growth forecast to 580Mb/d, while the IEA projected a 1.6MMb/dcontraction in demand alongside a 4.3MMb/d decline in supply. Refiners in Asia reduced processing rates due to crude supply constraints resulting from shipping restrictions.

The Mexican crude oil basket stood at US$71.39/b on Aug. 6, 2026, down from US$80.56/b recorded at the end of July, but up 12.5% from US$63.46/b on Feb. 27, before the onset of the conflict. Throughout 2026, the price of the export blend ranged from a low of US$51.64/b on Jan. 7 to a high of US$110.78/b on May 4. The monthly average price moved from US$56.47/b in January to US$102.94/b in May, before easing to US$78.62/b in June, US$75.10/b in July, and US$71.26/b across the first week of August.

Structural Bottlenecks and the End of Abundant Supply

Beyond short-term geopolitical shocks, structural factors threaten to create an enduring supply bottleneck toward the end of the decade. Alejandro Garza, Founder and Chief Investment Officer, Aztlan Equity Management, noted that while output from the US Permian Basin and Latin America cushioned global markets in recent years, this buffer is operating near maximum capacity. According to Aztlan’s market forecast, non-OPEC+ liquid supply will reach a ceiling near 56.5MMb/d before stagnating, driven by 10 years of capital underinvestment in long-cycle exploration.

Industry data from the International Energy Agency (IEA) validates this structural constraint. IEA reports that nearly 90% of global upstream capital investment since 2019, around US$500 billion annually, has been dedicated strictly to replacing declining production from existing fields rather than expanding capacity. Without continuous capital investment, global oil output would fall by 8% per year, or 5.5MMb/d annually, equivalent to losing the combined output of Brazil and Norway every single year. 

Furthermore, US tight oil production drops by more than 35% in its first 12 months without new drilling, while new conventional projects now face an average 20-year lead time from exploration licensing to first oil. As core shale plays mature and annual conventional discoveries remain 60% below 2010s levels, non-OPEC supply faces an inescapable structural plateau. “Omitting the investment cycle in hydrocarbon exploration does not accelerate the arrival of renewables; it only guarantees periods of price turbulence and energy insecurity. Those organizations that understand that the period of abundant and cheap oil is entering its final phase will be better prepared to navigate the coming structural volatility,” Garza noted.

This shift carries major strategic implications for global energy markets. Under natural decline rates, IEA projects that OPEC's share of global oil production will rise from 43% today to 53% in 2035 and over 65% by 2050, a concentration of market power unprecedented in oil market history. This restores absolute pricing power to OPEC+, limiting the ability of consuming economies to curb inflationary pressure as non-OPEC supply plateaus. Ultimately, extreme supply chain dependency on Western Hemisphere production heightens global vulnerability to maritime disruptions, while severe market volatility risks forcing governments to divert public funds away from renewable energy infrastructure toward emergency fossil fuel subsidies.