The article discusses the puzzling situation in the oil market, where prices remain low despite significant geopolitical tensions and a substantial drop in oil supply. The ongoing US-Iran conflict and attacks on shipping routes have led to a loss of 11.1 million barrels per day, about 10% of global demand, causing inventories to reach record lows. However, prices have not matched previous wartime highs, as demand for oil has declined sharply—expected to drop by 1 million barrels per day in 2026, a significant revision from earlier estimates. The demand reduction has been attributed to various factors, including reduced global economic activity, decreased workweeks in Southeast Asia, and a cut in flights by European airlines. JPMorgan strategists express skepticism over the rapid demand drop, suggesting possible undisclosed releases from reserves, mainly from China. The unusual market conditions have left strategists uncertain about the sustainability of these demand losses.

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Why aren't oil prices higher? Staggering drop in energy demand leaves strategists puzzled.

Jake Conley· Breaking Business News Reporter

Sat, July 25, 2026 at 6:00 AM EDT3 min read

The US-Iran war is back in full force, traffic through the Strait of Hormuz is plummeting, and attacks from the Houthis have threatened shipping through the Red Sea, a critical release valve for oil in the Persian Gulf.

In other words, a lot is going wrong for oil markets.

Since the conflict began in late February, the world has lost roughly 11.1 million barrels per day of oil supply, or roughly 10% of global demand. That loss has drawn down global inventories to record lows, according to a team of JPMorgan strategists led by Natasha Kaneva.

Yet, even as the Houthis have begun targeting vessels in the Red Sea, threatening to choke off roughly 5 million barrels per day of oil from Saudi Arabia, futures have remained far below their wartime peaks. Brent ( BZ=F), the international benchmark, crossed above $101 per barrel on Thursday, while US WTI crude ( CL=F) climbed past $92, but both remain roughly $20 below their April and May highs.

So why are prices still below their previous wartime highs?

96.78 -3.91 (-3.88%)

At close: July 24 at 4:59:55 PM EDT

BZ=FCL=F

The market has rebalanced, the strategists said, and the key lever has been demand.

Demand has fallen faster and more steeply than in any of the past six years, aside from the pandemic-driven downturn in 2020. If inventories — or supply — had fallen to their current lows with no demand adjustment, the JPMorgan strategists reasoned, prices would have likely raced upward far faster.

Instead, the market killed demand, thereby keeping prices contained.

Global oil demand is now expected to decline by 1 million barrels per day this year, according to the International Energy Agency's latest monthly oil market report, even as a "recovery in world oil demand is underway." The forecast represents a significant change over the IEA's May report, which estimated demand would drop by only 420,000 barrels per day.

"Our initial expectation was that the burden of adjustment would fall overwhelmingly on inventories, with demand continuing to grow," the strategists wrote. "Instead, the opposite happened."

Global oil demand has fallen further and faster than previously expected, per JPMorgan. (Chart: JPMorgan)·JPMorgan

The question for oil market watchers is where that demand destruction came from and how sustainable it is.

The demand loss is "so extraordinary that it naturally invites skepticism, particularly given that the global economy grew above potential during the first half of the year," the JPMorgan strategists wrote.

There's a chance that some countries without clear international reporting standards are releasing barrels from unknown reserves. China is the biggest suspect here, as the country — usually the world's largest importer of crude — rapidly cut down imports, giving the global energy complex some breathing room.

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Visibility into global oil inventories is "poor even across OECD countries, and it is considerably worse elsewhere," the strategists wrote.

However, even accounting for China, there remains an element of mystery in just how hard and fast demand has fallen. As countries in Southeast Asia curtailed workweeks, European airlines cut back on flights, and the US released record volumes from its strategic reserves, the sudden drop in global demand, essentially overnight, has left strategists baffled.

"Even with the benefit of hindsight, had we built the balance again from scratch, we would not have assumed demand losses to be more than twice as large as those experienced during the peak of the Global Financial Crisis," the strategists wrote.

"This is precisely what makes this episode so unusual."

Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.

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