The Oil Price Spike That Never Was

Forecasting is a way of buying peace of mind. We want a number for the worst-case scenario so we can decide how frightened to be, and once we have that number, we quietly stop thinking and start bracing for it.

That instinct is not irrational. It’s how we decide whether to refinance, whether to take the job across town, whether the August road trip is still on. Then, late February arrived, and the worst-case scenario got a number.

When the United States and Israel struck Iran on February 28, Tehran shut the Strait of Hormuz, the narrow channel that carries roughly a fifth of the world’s oil and refined products. The forecasts that followed were not subtle. Trading desks talked about crude at $150 a barrel. Some of them talked about $200.

You ran that math in your head. Most drivers did. One tank, times 52 weeks, times two cars in the driveway. Five months later, that number still has not shown up. Brent crude futures peaked around $126 a barrel, comfortably below the 2008 record of $147, and averaged roughly $101 between the start of the war and June 11, before briefly retreating to pre-war levels near $70 in early July, according to Reuters.

What Happened to the Oil Price Spike?

Start with what a closed Hormuz is supposed to mean. About 20% of the world’s oil and refined products move through it, and before the war, 100 to 130 ships passed through the waterway daily, according to AAA. Traffic has been a fraction of that for most of the year. That is the textbook definition of a supply shock. The textbook says prices go vertical and stay there.

Related: JPMorgan sends blunt verdict on oil, economy. They did not. West Texas Intermediate, the U.S. benchmark, has swung between roughly $68 and nearly $113 since the fighting began, AAA reported. It sat near $85 on Tuesday, July 21.

At the pump, the damage was real but bounded. Here is the shape of it. February 28: This is the day the strikes began: the national average for regular gas was $2.98 a gallon, according to AAA. May 21: The national average peaked at $4.56, its high for 2026, AAA reported. Early July: Brent briefly retreated to pre-war levels near $70 a barrel, Reuters reported. July 20: The national average climbed back above $4 for the first time since June 17, AAA said. July 21: WTI traded near $85, roughly $18 higher than a year earlier, according to AAA.

5 reasons the oil price spike never showed up. The mechanics are not mysterious, and none of the five reasons involve luck, according to Reuters. They involve a market that had far more slack in it than the models assumed.

Bullet points:

• China was the surprise. The world’s largest oil importer cut crude purchases to their lowest in nearly a decade by June, curbed fuel exports, and shifted drivers toward electric taxis, the wire service reported.
• The United States pumped harder. Domestic crude production hit a record 13.93 million barrels a day by April, and Washington drained the Strategic Petroleum Reserve as part of a record 400 million-barrel release coordinated by the International Energy Agency in March.
• Saudi Arabia rerouted. The kingdom pushed far more crude out of its Red Sea port at Yanbu, partly replacing barrels stranded behind Hormuz.
• Traders stopped chasing headlines. Liquidity thinned, funds refused to build big bullish positions, and the market went numb to each new announcement out of Washington and Tehran.