US dollar and supply growth outweigh Middle East tensions in crude markets
A stronger US dollar and expanding global supply from OPEC+ and the United States have dampened price gains despite heightened US-Iran hostilities disrupting flows through the Strait of Hormuz.
August WTI crude oil prices fell by 0.30 per cent to $0.24 lower on 16 July 2026, while August RBOB gasoline contracts dropped by 0.27 per cent, or $0.0088. The slight decline in energy benchmarks was primarily driven by strength in the US dollar, which typically weighs on commodity prices denominated in the greenback.
Geopolitical tensions provided a counterbalance to the bearish currency headwinds. Following US airstrikes on Iranian targets and the seizure of a sanctioned oil tanker in the Persian Gulf, Iran retaliated by firing missiles at American bases in Kuwait and Jordan. The Jordanian government reported intercepting eight missiles during the exchange. President Trump has pledged to intensify military operations until Iran ceases attacks on shipping in the Strait of Hormuz, with reports indicating discussions around the potential seizure of Kharg Island, Iran’s primary oil export terminal.
The conflict has significantly impacted global supply chains. The International Maritime Organization has warned that transit through the Strait of Hormuz is currently too dangerous, leading to a sharp reduction in visible vessel traffic. According to data compiled by Bloomberg from vessel-tracking providers Kpler and Vortexa, the seven-day moving average of oil flows through the strait has slumped to approximately 5.5 million barrels per day. This represents a substantial decline from the 9.4 million barrels per day recorded prior to the collapse of a ceasefire.
Despite these supply disruptions, broader market fundamentals remain under pressure from rising global output. The International Energy Agency recently raised its forecast for US crude production in 2026 to 13.78 million barrels per day, up from a previous estimate of 13.72 million barrels per day. Additionally, OPEC+ has committed to further increasing output quotas, planning to boost production by 188,000 barrels per day in August as part of a strategy to fully restore supply cuts made in 2023 by the end of September.
Russian crude exports are also adding to global supply volumes. Data indicates that Russia’s four-week average crude exports rose to 4.13 million barrels per day through 28 June, the highest level since the invasion of Ukraine began. This surge in crude shipments coincides with a collapse in domestic refining capacity due to Ukrainian drone attacks, which have damaged at least 24 of Russia’s 34 largest refineries. Consequently, Russia is exporting more crude while imposing bans on gasoline, jet fuel, and diesel exports to manage a domestic fuel shortage.
Inventory data suggests tightness in US storage, though not enough to override supply concerns. The Energy Information Administration reported that US crude oil inventories as of 10 July were 6.2 per cent below the five-year seasonal average, with gasoline and distillate inventories trailing by 8.4 per cent and 11.1 per cent respectively. Meanwhile, Baker Hughes reported that the number of active US oil rigs remained unchanged at 445, a 13-month high but still well below the 2022 peak.
