WHERE NOW FOR THE OIL PRICE?
For much of the past decade, the oil market could be reduced to a familiar equation, that of supply and demand. Simply put when supply exceeded demand, prices fell. When demand outpaced supply, prices rose. Opec, US shale and the global economy could complicate the calculation, but the underlying logic remained intact.
In 2026, that equation has become considerably less useful. Brent is back above $100 a barrel. Yet this is not simply a story of the world running short of oil. Middle Eastern exports have been recovering, with September flows estimated at 12.8mn barrels a day. So why is oil still so expensive?
The answer is that the market has acquired a new scarcity: reliable access. A barrel of oil in the wrong place is not necessarily a substitute for a barrel in the right place. The infrastructure connecting the world’s oilfields to its refineries is neither frictionless nor infinitely flexible.
The Strait of Hormuz has provided the clearest demonstration. When a major shipping route becomes unreliable, the problem is not necessarily that millions of barrels cease to exist. They simply become harder, slower and more expensive to deliver.
The oil-price equation has therefore changed from one primarily concerned with supply and demand to one increasingly concerned with supply, security and logistics. Alternative pipelines and ports have helped compensate for the disruption. Saudi Arabia’s East-West pipeline and the UAE’s Fujairah route have suddenly acquired strategic importance.
But alternatives have limits. They require pipeline capacity, tankers, ports and insurance. Some crude grades cannot easily substitute for others, while refineries are designed around particular qualities of oil.
The result is a market that can be technically supplied but physically tight. Today’s oil price therefore contains something that looks increasingly like a logistics premium.
The other shock absorber is running down. Inventories are the oil market’s insurance policy. They allow consumers and refiners to absorb temporary disruptions without immediately bidding up every available barrel. That insurance has been heavily used in 2026. The IEA estimates that global observed inventories have fallen by hundreds of millions of barrels since the start of the conflict. That matters because inventories can only fall for so long.
The market is therefore asking a different question: not simply how much oil is being produced? but how much readily available oil remains when something goes wrong? That is a much more important measure of security.
Demand is changing too The paradox is that high prices are helping to cure high prices. The IEA expects global oil demand to fall in 2026 as elevated fuel prices and supply disruptions weigh on consumption, before returning to growth in 2027. This is the traditional commodity mechanism of demand destruction, but it is operating alongside a geopolitical shock rather than a conventional economic cycle. And that distinction matters. When oil rises because the global economy is booming, the price signal tells producers to invest in more supply. When it rises because ships cannot safely move through a strategic waterway, the signal is less straightforward. The price is no longer simply communicating scarcity but communicating risk.
Forecasting oil may be the defining characteristic of the 2026 market. An analyst can model global demand, production, refinery utilisation and inventories. What is much harder to model is whether a diplomatic agreement will succeed next week. Yet that probability can be worth tens of dollars a barrel. The oil-price forecast is therefore increasingly a geopolitical forecast. That leaves two broad forces pulling in opposite directions.
If Hormuz becomes reliably navigable, damaged infrastructure is repaired and Middle Eastern production returns, the physical market should loosen. Inventories can then rebuild and prices fall. If disruption persists, however, the market loses another layer of its safety margin. Inventories fall further, freight and insurance remain elevated and refiners compete for a narrower pool of readily deliverable crude. At that point, prices do not need to rise because demand is particularly strong. They can rise because the market has run out of easy substitutes for disrupted supply.
The temptation is to ask whether Brent is heading to $80, $100 or $120. But perhaps that is the wrong question. The more interesting question is whether the oil market can return to the world that existed before 2026, one in which supply and demand were the dominant forces and geopolitics was largely a premium around the edges.
For that to happen, the market needs more than additional production. It needs reliable transport, rebuilt inventories, functioning infrastructure and confidence that a barrel produced in one part of the world can reach a refinery in another.
The oil equation has therefore become:
Supply + demand + inventories + logistics + geopolitics = price.
The first two still matter enormously. But 2026 has demonstrated that they are no longer sufficient. The scarce commodity may not be oil. It may be certainty.