Oil and Gas Price Update: Q1 2026 in Review

Strait of Hormuz disruptions expose oil market fragility

Richard Tullis, natural resource analyst at Water Tower Research, said during a podcast interview with the Investing News Network (INN) that the price volatility that took oil toward US$120 and back below US$100 in the same session was extraordinary. In his view, the movement reflects a market “moving on any latest news or rumors.”

In that type of environment, headlines, not fundamentals alone, are driving price action.

At the center of this fragility is the Strait of Hormuz. Tullis described it as “the crux of it all,” noting that what was once a passage for more than 100 vessels per day is now restricted to a handful of shipments, many tied to Iran.

The implications of this bottleneck are profound: roughly 20 million barrels per day of petroleum products are effectively stranded, pushing Middle Eastern storage toward capacity and forcing oil production curtailments across key producers, including Saudi Arabia, Iraq and the United Arab Emirates.

This bottleneck has reshaped the supply outlook almost overnight. Even as policymakers attempt to stabilize markets, most notably through the discussions of strategic reserve releases, Tullis believes the impact is limited.

While headline figures suggest a historic intervention, the reality is more modest — a potential 2 million barrel per day release pales against an estimated supply shortfall exceeding 6 million barrels per day. Add in rising transportation and insurance costs, and the net effect becomes, in his words, “on the minimal side.”

The result is a market that remains acutely sensitive to geopolitical developments. Military strikes, infrastructure damage and even rumors of de-escalation talks are enough to trigger sharp price swings. Until flows through Hormuz resume in a meaningful way, volatility is likely to remain elevated.

From crude to equities: The case for a catch-up trade

The surge in oil prices has reverberated far beyond the energy complex, triggering broad selloffs in global equities.

Despite oil’s declining share of global GDP over the past several decades, its influence remains deeply embedded in economic activity. Transportation, agriculture, manufacturing and petrochemicals all depend heavily on energy inputs, meaning price shocks cascade quickly through the system.

Tullis noted that even a US$10 increase in oil can shave one to two tenths of a percentage point off GDP.

The magnitude of recent moves, at times US$40 to US$50, raises the stakes considerably. If sustained, such increases could materially weigh on global growth expectations, explaining the sharp reaction in equities.

Yet within the energy sector itself, a divergence has emerged.

While crude prices have surged as much as 40 to 50 percent since late February, energy equities have lagged. The disconnect, Tullis explained, stems from the futures curve.

Longer-dated prices — those that more directly influence equity valuations — have not risen nearly as sharply as front-month contracts. However, that dynamic may be shifting. As the conflict drags on and confidence in a near-term resolution fades, longer-dated futures are likely to move higher. This raises the prospect of a “catch-up trade” in energy equities, particularly if investors begin to price in a more prolonged disruption.

“There’s a very big gap there,” Tullis observed, pointing to the growing mismatch.

Looking ahead, two indicators stand out: the status of the Strait of Hormuz and the extent of damage to regional energy infrastructure. Even a partial reopening of the strait could ease pressures, while sustained or escalating infrastructure damage would tighten supply further and extend the current rally.

Why time, not just disruption, is driving oil’s next move

If the first quarter has revealed anything about oil markets, it is that not all disruptions are created equal.

According to Ajay Parmar, director of energy and refining news at ICIS, the duration of the Strait of Hormuz outage, not just its severity, will ultimately determine how deeply the market tightens. In a short-lived conflict lasting roughly four to five weeks, he expects crude to hold above US$100, supported by an already significant supply shock.

As much as 8 million to 9 million barrels per day has been shut in across the Middle East, with storage capacity effectively maxed out in key producing nations.

Even with pipeline bypasses in Saudi Arabia and the United Arab Emirates operating at full capacity, up to 10 million barrels per day could remain offline, an extraordinary figure by any historical standard.

And yet prices have not surged as dramatically as such losses might suggest.

The reason lies in the market’s starting point. Entering 2026, oil was widely expected to be in surplus, a cushion that has so far absorbed part of the shock. As Parmar noted, this “particularly long and well-supplied market” has tempered the upside, keeping prices anchored closer to the US$100 mark in the near term.

That balance will shift quickly, however, if disruptions persist.

In a one to three month blockage scenario, the cumulative impact becomes more pronounced.

“It’s duration that matters more than severity,” Parmar told INN.

He also pointed to the compounding nature of supply deficits over time. Under a prolonged outage, prices could grind steadily higher, potentially pushing Brent into the US$150 range as inventories draw down and spare capacity erodes.

Crucially, bringing supply back online is not always immediate. While OPEC+ producers are accustomed to managing output, the current situation falls outside normal operational controls. Wells that have merely been curtailed can return within days or weeks, but full shut-ins, or worse, infrastructure damage, could take months to resolve. This introduces a lag effect that could keep markets tighter for longer, even after a ceasefire.

Strategic reserve releases offer only partial relief.

Parmar estimates that coordinated releases could add roughly 3.5 million barrels per day, a meaningful figure, but still well short of offsetting Middle Eastern losses. Combined with potential flows from previously restricted sources, these measures may cap extreme price spikes, but are unlikely to fully rebalance the market.

The longer the disruption drags on, the more structural risks begin to emerge. Governments may prioritize domestic supply, raising the specter of resource nationalism in an otherwise globalized oil market.

Early signs are already visible, with some import-dependent nations moving to restrict exports of refined products. In a prolonged crisis, such policies could further fragment global trade flows and amplify volatility.

Gas in the crosshairs: LNG exposure, infrastructure risk and the next energy shock

Natural gas prices rallied in late January from US$3.36 per million British thermal units to US$5.03, buoyed by Winter Storm Fern, which sent heating demand soaring and triggered production freeze-offs across key US basins.

The rally proved fleeting.

By February, unseasonably mild temperatures across the Eastern US erased the weather premium.

While oil has dominated headlines, the gas market, particularly LNG, is facing its own reckoning.

Andreas Schröder, head of gas at ICIS, pointed out that today’s crisis differs from past shocks in one key respect: its geographic center of gravity. Where Europe was at the epicenter of the 2022 energy crisis following Russia's invasion of Ukraine, the current disruption is more acutely felt in Asia, which is heavily reliant on Middle Eastern energy flows.

Europe, meanwhile, has undergone a structural transformation.

Roughly one-third of its gas demand is now met through LNG imports, with the majority sourced from the US. Direct exposure to Middle Eastern LNG has declined sharply over the past decade, reducing immediate vulnerability to disruptions in the Gulf. However, that insulation is far from complete.

Recent attacks on Qatar’s Ras Laffan industrial complex, considered a cornerstone of global LNG supply, underscore the market’s fragility. With damage affecting multiple liquefaction trains, Schröder warned of a potential “permanent reduction of output” lasting three to five years. Such a loss would reverberate across global gas markets, tightening supply and elevating price risks well beyond the current crisis window.

At the same time, the Strait of Hormuz remains a critical chokepoint for LNG shipments, as well as crude.

A sustained closure would constrain flows across both markets, compounding the impact of infrastructure damage and reinforcing upward pressure on prices.

Policy decisions are adding another layer of uncertainty. Europe’s recent move to relax gas storage targets may ease short-term pressure on utilities, but it carries significant downside risk.

As Schröder cautioned, looser mandates could leave the region dangerously exposed heading into the next winter heating season, effectively shifting today’s risks into tomorrow’s volatility.

Oil and gas forecast for 2026

Longer term, structural demand trends are beginning to reshape both oil and gas markets.

On the oil side, petrochemicals and jet fuel will drive incremental demand, even as electrification erodes gasoline and diesel consumption, particularly in China, which has led the majority of global demand growth over the past decade.

For gas, the power sector remains the key pillar, with natural gas serving as a backup to intermittent renewables.

Taken together, these dynamics point to a market in transition, one where geopolitical shocks intersect with structural change. Unsurprisingly, in the near term, the trajectory of the Strait of Hormuz will dictate price direction.

Looking farther out to the medium and long term, it is the interplay between energy security, policy shifts and demand evolution that will define the next phase of the oil and gas cycle.

For now, the oil and gas market remains on edge, caught between geopolitical uncertainty and structural supply constraints, with little room for error.