On Oil’s Latest Vicissitudes

Worries over global oil supply are topping headlines anew, especially after last Friday’s drone attack on Saudi Arabia’s East-West pipeline collided with the news the Iran-backed Houthis had seized a firmer grip on the Bab-el-Mandeb Strait in the southern end of the Red Sea. Brent crude oil has accordingly extended its earlier rise to roughly $108 per barrel Tuesday, which some blame for 10-year Treasury yields hitting 5%. When oil market noise picks up, we think investors benefit from taking a breath, stepping back and reviewing the fundamentals—particularly on the supply front. While disruptions are real, they are also well known, widely watched and could easily prove fleeting, mitigating the threat to the global bull market. 

Oil is coming off an eventful summer. After hitting its 2026 year-to-date high on April 7 ($138.21 a barrel), Brent crude prices retreated, settling to $68.53 a barrel on July 2—pre-war levels—following the US-Iran interim ceasefire in June.^[i] But prices headed higher again after fighting picked up a week later—breaching the $100 threshold briefly in late July and returning to those levels this month. (Which again, isn’t automatically negative for stocks or all that high by historical standards when taking inflation adjustment into account.)

The latest development: Drones, reportedly fired from Iran-backed rebel groups in Iraq, struck Saudi Arabia’s East-West pipeline, forcing Riyadh to close the pipeline. The pipeline has become a vital pathway for Saudi crude to reach global markets since it avoids the heavily impacted Strait of Hormuz. The East-West pipeline can carry up to 7 million barrels per day (approximately 2 million for domestic Saudi refiners, 5 million for export).^[ii] Now some fear the disruption will force Saudi Arabia to cut production, which is already down to a 30-year low—stirring additional worries about the state of global oil supply, especially after the International Energy Agency (IEA) forecast supply will contract by -5.7 million barrels per day this year.^[iii]

But let us put this in perspective. First, Saudi Arabia is already adapting by raising shipments through the Strait of Hormuz again. This had been happening in the early days of September and the Saudis are reportedly trying to further increase supplies.^[iv] There is also debate over how long the pipeline will be out of service, ranging from the nebulous “very soon” to several weeks.^[v] While this is a real issue, this doesn’t appear to be a long-term situation either way. And all the headline attention it receives should mute the equity market impact.

Outside the Middle East, supply isn’t in the dire straits many presume. See production trends elsewhere—particularly in the Americas. The US is on track to hit an all-time high in crude oil production this year at 13.8 million barrels per day (b/d), surpassing 2025’s record of 13.7 million b/d.^[vi] Baker Hughes rig counts have climbed in both the US and Canada. US rig counts rose by 3 in the week ended September 11—52 in the past year; for Canada, 3 in the past week and 21 in the past year.^[vii] Rig counts aren’t perfect indicators for future supply, but adding infrastructure aids producers’ output capabilities.

In South America, Brazilian oil output has been bubbling up, with production and exports hitting record highs this year. Some research outfits estimate Brazilian production can hit as much as 4 million b/d by 2030.^[viii] While long-term forecasts are limited and that production won’t address today’s interruptions, South America’s largest economy is becoming an increasingly important global oil producer. Similarly, oil production out of Argentina has been exploding thanks to its own shale oil and gas boom, hitting an all-time high of 888 thousand b/d in May thanks to output from its Vaca Muerta shale formation.^[ix]

We aren’t saying these longer-running production trends offset the latest shortfalls in the Middle East, either in scale or timing. They don’t. But those disruptions are widely watched. Chewed over. Discussed. That pre-prices them into oil, stocks and similarly liquid assets. Meanwhile, we think ongoing production growth outside the Persian Gulf is underappreciated and illustrates how producers respond to price signals.

Moreover, we have plenty of recent evidence surging oil prices won’t unleash a host of permanent economic negatives. Recall, when war broke out near February’s end, experts worried inflation would heat up again, as would prices for certain products (especially for gasoline). And yes, in the short term, prices did jump. A gallon of US gasoline (all grades) rose from $3.07 a gallon in the week ending February 23 to as high as $4.63 a gallon in the week ending May 11.^[x] Likewise, US CPI accelerated from 2.4% y/y in February to 3.3% in March—on its way to a 4.2% rate in May.^[xi] We don’t understate energy prices’ role here, as they jumped from 0.4% y/y in February to 12.6% in March and as high as 23.0% in May.^[xii]

But what happened after May? Those price categories didn’t keep rising in perpetuity. As oil prices cooled (Exhibit 1), so did those related prices. Gasoline prices trended down to below $4.00 a gallon in late June/early July (before bouncing anew). CPI didn’t reheat.^[xiii] Brent crude’s retreat from highs was even more dramatic. From highs of $138 per barrel on April 7, prices fell -50% to the aforementioned July pre-war level. When supply fear waned, prices reversed fast. No reason that can’t recur.

Exhibit 1: Brent Crude Prices This Year

Source: FactSet, as of 9/15/2026. Brent crude oil prices, 12/31/2025 – 9/14/2026.

That is worthwhile context to keep in mind right now. While unexpected developments can move prices in the short term, businesses, governments and consumers adjust. We don’t think this time is different—a reality markets have long since recognized and priced in.