The US Energy Information Administration released its June 2026 Short-Term Energy Outlook on Tuesday, projecting that global oil inventories will fall to their lowest level since January 2003 by the end of this year, driven almost entirely by the near-shutdown of crude oil flows through the Strait of Hormuz since the outbreak of the Iran conflict.
Middle East oil producers reduced crude output by more than 11 million barrels per day in May compared with pre-conflict levels, as very limited shipping traffic through the Strait of Hormuz forced production cuts across the region. The scale of that reduction has no modern parallel outside of the 1973 Arab oil embargo and the 1979 Iranian revolution. The global oil market had no inventory buffer large enough to absorb a disruption of that size without drawing down reserves at a pace that is now alarming energy planners across the OECD.
Global oil inventories are expected to fall by an average of 6.3 million barrels per day in the second quarter of 2026 and by 7.6 million barrels per day in the third quarter. OECD inventories are forecast to fall to a low of 50 days of future demand cover by the end of 2026, the fewest days of supply since January 2003, when the EIA's dataset begins. That 50-day figure is the one energy security analysts watch most closely — it represents the threshold below which supply disruptions can trigger genuine rationing rather than just price increases.
US fuel prices have reflected the supply shock in ways American consumers are feeling at the pump and in freight costs. Diesel and jet fuel wholesale prices are forecast to rise more than 60% in 2026 compared with the EIA's pre-conflict February outlook, while the wholesale gasoline price is expected to increase by around 50% over the same comparison. Those increases sit on top of already-elevated prices from the conflict's earlier stages, meaning the cumulative impact on trucking costs, airline ticket prices, and consumer goods transport has compounded significantly since the first quarter.
The disruption has simultaneously created a windfall for American oil producers and exporters. Disruptions to crude oil and refined product flows through the Strait of Hormuz drove increased demand for US supply, pushing US crude oil and petroleum product net exports in April to a record 5.8 million barrels per day, with May net exports staying close to that level. Demand for US diesel and jet fuel in particular has risen sharply, with net exports for both expected to increase in the second quarter of 2026 compared with the same period in 2025.
The Permian Basin is driving most of the production response. US marketed natural gas production in the EIA's forecast grows by 3.3% in 2026, roughly 3.9 billion cubic feet per day, with Permian associated natural gas accounting for the majority of that growth. Higher crude oil prices in the forecast are incentivizing additional drilling activity, which brings associated natural gas as a byproduct — a dynamic that is suppressing domestic natural gas prices even as oil prices remain elevated.
Natural gas prices tell a different story than oil. The Henry Hub spot price rose slightly in May as warmer weather increased electric power sector demand, but natural gas prices remain relatively flat in 2026 as supply growth outpaces demand. The EIA expects the Henry Hub spot price to average about $3.34 per million British thermal units in the second half of 2026 and $3.55 in the second half of 2027, as rising electricity generation demand and ongoing growth in US natural gas exports put upward pressure on prices next year.
The EIA's forecast includes a critical assumption that will determine whether its inventory projections hold. The outlook assumes oil shipments through the Strait of Hormuz resume in the third quarter of 2026, but that it will likely take several months to ramp back up to pre-conflict traffic levels, with full recovery not expected until early 2027. That assumption, written before this week's collapse of the formal Iran-US signing ceremony in Switzerland, now looks optimistic. If the diplomatic timeline slips further, the inventory draw projections would worsen, and the 50-day OECD floor could be breached before the end of the year.
The EIA also expects that some oil production in the Middle East will remain disrupted beyond the forecast period, even after Hormuz shipping resumes, because infrastructure damage and operational disruptions take time to reverse. The combination of slow resumption and lingering production damage means the market's recovery to pre-conflict inventory levels is measured in years, not quarters, regardless of how quickly the diplomatic situation resolves.
US energy-related carbon dioxide emissions are forecast to decrease by 1.8% in 2026 relative to 2025, primarily due to expected declines in coal consumption at power plants, though a modest increase is projected for 2027 as natural gas-fired generation grows. That emissions trajectory runs counter to the inflationary energy environment in one respect: high oil prices are accelerating the shift away from oil-dependent transport in the parts of the economy where alternatives exist, compressing coal demand faster than baseline forecasts had assumed.
MorrowReport analysts will continue tracking the EIA's monthly outlook revisions and Hormuz shipping data as the supply situation develops.
