Why oil didn’t hit $200 despite the biggest supply shock in history

Dubai: Despite the effective closure of the Strait of Hormuz for more than three months — cutting over 10 million barrels per day of Middle East oil supplies — prices did not surge as expected. Oil remained below $130 per barrel, far from earlier projections of $150, $200, or even $300.

According to a Bloomberg report, the global market’s ability to adapt through multiple “compensation mechanisms” played a key role in containing prices, despite the unprecedented scale of the disruption.

Several factors helped limit the rise in oil prices. Major economies drew heavily on strategic reserves to absorb the shock and offset temporary supply shortages. At the same time, US oil exports reached record levels, positioning the United States as the largest alternative supplier in global markets. Some producing countries also reduced reliance on sensitive maritime routes by expanding alternative export pipelines.

Meanwhile, weaker demand from China significantly offset the supply gap. Chinese imports fell by around 40% in May compared to the annual average —equivalent to one-third to one-fifth of the disrupted supply. Refinery activity also dropped to about 13 million barrels per day, the lowest level since the COVID-19 pandemic, compared to 14.8 million barrels last year.

Emergency measures further stabilized the market. These included coordinated global releases from strategic reserves and the rerouting of Gulf exports through alternative channels. Although some shipments continued to pass through the Strait of Hormuz, volumes dropped sharply from around 100 vessels per day before the crisis to just two or three.

The surge in US shale production also played a critical role. The United States became a net oil exporter, strengthening its ability to balance markets. Around 172 million barrels were released from US strategic reserves, much of which was exported to Europe and other regions.

Policy adjustments also contributed, including easing certain restrictions on Russian oil, which boosted crude flows to India. India increased its imports from Russia by 63% to 1.76 million barrels per day in May.

Despite this relative stability, global oil inventories are declining at a record pace, raising concerns about future vulnerability. US reserves have fallen to their lowest levels in over two decades, while pressure is building on key storage hubs such as Cushing, Oklahoma.

Analysts say the next decisive factor will be the recovery of Chinese demand. Slower economic growth, a shift toward coal in some industries, and rapid adoption of electric vehicles have all reduced oil consumption.

For now, the market remains fragile. Continued inventory drawdowns, combined with any new supply disruptions or a strong rebound in demand, could trigger sharp price increases. Without a lasting political resolution, oil markets remain exposed to volatility despite their ability to absorb one of the largest supply shocks in history.