Brent crude near $90 a barrel as Hormuz disruptions, shrinking inventories and geopolitical tensions reshape the global oil market

Global crude oil markets are navigating an increasingly fragile balance between supply disruptions and weakening demand. Brent crude is hovering near $90 a barrel after a sharp year-to-date rally of nearly 50 per cent, but analysts at Mirae Asset Sharekhan caution that a prolonged period of elevated prices could eventually trigger demand destruction, particularly across major Asian economies.

The central source of uncertainty remains the ongoing US-Iran standoff and disruptions around the Strait of Hormuz, one of the world's most important energy corridors. Supply interruptions, higher shipping costs, declining inventories and constrained refining activity have combined to keep the oil market tight.

Strait of Hormuz remains the key risk for global oil supplies

The disruption around the Strait of Hormuz has emerged as the biggest near-term risk for the global energy market. According to the analysis, around 8-10 million barrels per day of global oil supply have effectively been taken offline because of the broader disruption.

The situation has also increased risks for oil tankers and other commercial vessels operating through the region. Attacks involving Iran-backed groups across Lebanon, Gaza, Yemen and the Red Sea have added to concerns around the safety of global shipping routes.

Shipping costs have reportedly risen to around $10 a barrel, while repeated incidents involving vessels have made insurers, shipowners and commodity traders increasingly cautious.

The result is a market where even available oil may not immediately translate into accessible supply for refiners.

Emergency inventories are providing only temporary relief

The oil market has so far avoided an even sharper price spike because governments and market participants have been able to rely on emergency inventories and floating storage.

An estimated 400 million barrels of strategic petroleum reserves and nearly 200 million barrels of floating oil storage have been utilised over the past six months, according to the analysis.

These measures have helped prevent Brent from remaining above $100 a barrel for an extended period. However, the cushion is gradually becoming thinner.

OECD oil reserves have declined over recent months, while floating inventories have also fallen. If supply disruptions persist into September, the market could have significantly less capacity to absorb another major shock.

Demand destruction becomes an increasing concern

While supply remains the immediate problem, the bigger medium-term issue could be the impact of expensive crude on consumption.

Higher oil prices increase costs for transportation, manufacturing, logistics and aviation. They can also reduce household purchasing power by making petrol, diesel and other energy products more expensive.

Asia could be particularly vulnerable because of its large dependence on imported energy.

China, the world's largest contributors to incremental oil demand, has already seen signs of slower economic activity. Lower crude imports have simultaneously helped reduce pressure on the international market.

Mirae Asset Sharekhan expects global oil demand could decline by around 2 million barrels per day in 2026 if crude prices remain elevated and petroleum-product shortages continue.

This creates a potentially self-correcting cycle for crude prices: higher oil prices reduce consumption, weaker demand pressures refiners to cut purchases, and eventually the reduction in consumption can begin easing the supply-demand imbalance.

China becomes critical for the next phase of the oil cycle

China's crude-import trends will remain an important indicator for global oil markets.

The country has reduced seaborne crude imports significantly from pre-war levels, helping offset some of the supply lost because of disruptions around Hormuz.

However, weaker imports also indicate that high prices and slower economic activity are beginning to influence purchasing decisions.

If Chinese industrial activity and transportation demand remain subdued, global crude demand could weaken faster than expected. On the other hand, a recovery in Chinese economic activity could quickly put renewed pressure on an already constrained supply system.

Refining activity is another major pressure point

The crude market cannot be assessed solely through production figures. Refining capacity and margins are equally important because consumers ultimately use petrol, diesel, aviation fuel and other refined products.

Global refining capacity improved by around 3 million barrels per day in July, as European refiners returned from maintenance and Asian refiners increased operations.

However, overall refining activity remains below pre-disruption levels.

China's independent refiners are reportedly operating at only around 52-55 per cent of capacity, highlighting the impact of expensive crude and weak refining economics.

Refiners are increasingly reluctant to purchase high-priced crude unless margins provide adequate compensation.

Russia adds further uncertainty to refined-product supplies

Russia's energy infrastructure has emerged as another source of volatility.

Attacks on Russian refineries, tankers and pipeline infrastructure have affected the country's refining operations. Russian crude-processing rates averaged around 3.51 million barrels per day in July, while crude production fell to approximately 8.89 million barrels per day.

The development is important for global fuel markets because Russia remains a major supplier of diesel and other refined petroleum products.

Lower Russian refining activity could therefore tighten global product markets even if crude production elsewhere remains relatively strong.

OPEC+ production growth may not immediately ease prices

OPEC+ has increased production, but additional output may not necessarily translate into immediate relief for international consumers.

The problem is increasingly one of logistics and accessibility rather than production alone.

Oil needs to be transported safely, insured and processed at refineries before it reaches consumers. Any disruption across these stages can keep petroleum products expensive.

Therefore, investors should watch physical supply flows and shipping conditions alongside official production targets.

US fuel inventories remain below seasonal averages

The United States is also showing signs of tightness in refined products.

Gasoline inventories are around 5.3 per cent below the seasonal five-year average, while distillate inventories are approximately 12.7 per cent below average.

US crude production remains strong at around 13.83 million barrels per day, but high production has not completely resolved the shortage in refined products.

This suggests that crude availability alone may not be enough to bring fuel prices lower. Refinery utilisation, product inventories and transportation infrastructure will remain equally important.

What could push Brent towards $100?

The biggest upside risks for crude prices remain geopolitical.

A fresh escalation involving the Strait of Hormuz could rapidly tighten physical supply and push Brent towards or above $100 a barrel. Continued attacks on energy infrastructure in Russia or renewed disruptions in the Red Sea could have a similar impact.

If the Hormuz disruption extends into late September, Mirae Asset Sharekhan sees potential upside risk for Brent towards $95-$97 per barrel.

However, a sustained move above $100 would likely require a combination of prolonged shipping disruption, declining inventories and continued refinery constraints.

Diplomatic breakthrough could trigger a correction

The biggest downside catalyst would be a credible diplomatic breakthrough between the US and Iran.

Such an outcome could reduce geopolitical risk premiums, improve shipping confidence and allow more oil to move through critical routes.

However, analysts believe a temporary correction may not necessarily lead to a sustained decline in crude prices. For prices to fall materially, shipping flows, refinery operations and product inventories would all need to improve simultaneously.

Brent outlook: $88-$94 range in the near term

Mirae Asset Sharekhan's base case is for Brent crude to remain in the $88-$94 per barrel range in the near term.

The outlook remains highly sensitive to developments around Hormuz and other geopolitical flashpoints. A prolonged disruption could push prices towards $95-$97, while a significant diplomatic breakthrough could trigger downside pressure.

For investors, the key issue is no longer simply whether crude prices rise or fall. The more important question is how long elevated prices can be sustained before they begin to weaken global consumption.

What it means for investors

A prolonged period of high crude prices could have mixed implications for Indian equities. Higher energy costs can put pressure on transport-intensive businesses, airlines, chemicals, paints and other industries with significant petroleum-linked inputs. On the other hand, upstream oil producers and some energy-related businesses could benefit from stronger realisations.

The bigger macroeconomic concern is that persistent crude inflation could increase input costs, pressure corporate margins and complicate the inflation outlook.

Bottom line: The oil market remains caught between a significant geopolitical supply shock and growing evidence of demand weakness. Unless shipping conditions and inventories improve, crude prices are likely to remain volatile. At the same time, sustained prices near $90 or above could eventually create the very demand destruction needed to rebalance the market.