EIA Lifts Middle East Shut-In Estimates as Hormuz Constraints Persist

The EIA's updated outlook forecasts Brent crude averaging approximately $85 per barrel in the third quarter of 2026, before receding to $69 in 2027 as inventories rebuild and production recovers. The agency expects most regional crude output to return near pre-conflict levels in early 2027, but warns that roughly 600,000 barrels per day of disruptions are likely to persist through the end of 2027, underscoring the long tail of the current supply shock.

U.S. commercial crude inventories are expected to remain below the five-year low through the end of 2026, the EIA said, citing strong exports, reduced imports and elevated refinery runs. The combination of constrained global supply and tight domestic stocks has amplified the inflationary pass-through from energy costs to the broader consumer price index, a dynamic the agency flagged as a key risk in its second-order analysis.

The disruption is already reshaping procurement patterns. India's Hindustan Petroleum Corp. and Mangalore Refinery and Petrochemicals Ltd. are seeking up to six million barrels of crude, according to tender documents reported by the report on August 12. The demand-pull from Asian refiners scrambling for alternative supply is tightening the non-Gulf crude market and lending further support to the Brent-WTI spread.

U.S. Energy Secretary Chris Wright offered a somewhat more sanguine data point, telling reporters that the seven-day average for oil leaving the Strait of Hormuz is currently running at almost nine million barrels per day. That figure, disclosed on August 11, may represent a ceiling already priced into futures, limiting further upside for energy assets absent a new escalation in the conflict.

Brent's rally above $87 on August 10, driven by the failure of U.S.-Iran talks to reopen the waterway, rippled through equities and fixed income. Most S&P 500 shares declined that session while bond yields rose, as investors recalibrated inflation expectations ahead of key CPI releases. Cleveland Fed President Beth Hammack cautioned that several rate hikes could still be required to return inflation to target, reinforcing the hawkish messaging that elevated energy costs may force.

Beyond crude, the EIA trimmed its Henry Hub natural gas price forecast for the third quarter to $2.87 per MMBtu, fifty cents below its July estimate, citing weaker LNG feedgas demand and robust production. U.S. LNG exports are projected at 16.5 billion cubic feet per day in the quarter, slightly lower than previously expected due to Freeport LNG maintenance. The agency also cut its 2027 Texas electricity demand growth forecast to six percent from fourteen percent following a pause on new data center development.