“When commercial inventories decline, prices typically rise as market participants compete for an increasingly scarce physical supply,” Kaneva added. “But when the market clears through weaker demand, the price response works in the opposite direction.”

Additionally, while governments have released strategic petroleum reserves to keep prices down, commercial participants appear to have held on to private oil inventories rather than draw them down.

“This was despite prompt cash barrels trading at historically large premiums to the next month’s futures in March and April — conditions that would normally incentivize commercial inventories to instantly liquidate,” Kaneva said.

China: A case study in oil demand destruction

The demand destruction story is perhaps best exemplified in China, which Kaneva highlighted as “a key area of uncertainty.”

“Over recent months, Chinese oil demand appears to have fallen much faster than we initially anticipated, implying the economy may be adapting to higher energy prices more efficiently than past experience would indicate,” Kaneva said.

She pointed to behavioral patterns like the growth in consumer EV purchases as well as the country’s ongoing transition to electrification and decarbonization.

“Even before the current shock, gasoline demand was on a structurally weaker trajectory as rapid EV adoption displaced incremental gasoline use,” Kaneva said. “The oil situation acted as an accelerant, reinforcing the shift through higher fuel costs, energy-security concerns, supportive policy and the continued rapid expansion of charging infrastructure. We estimate China’s gasoline demand destruction at about 180 thousand barrels per day (kbd), and expect 70% of that loss may not return even after markets normalize. In practical terms, this could translate into crude import requirements as much as 1 million barrels per day (mbd) below prior expectations, a scenario that would require significantly smaller inventory drawdowns going forward.”

Will there be long-lasting damage to energy markets?

Kaneva does not believe there will be long-lasting damage to energy market production as a result of the situation in Iran. She cited the recent example of COVID-era Organization of Petroleum Exporting Countries (OPEC) cuts, in which producers temporarily removed more than 10 million barrels per day from the supply chain. “Most production ultimately returned without major, lasting damage to reservoir performance,” Kaneva said.

However, short-term operational issues may linger, dragging on recovery time. Extended downtime can drive corrosion, scale buildup or failures in artificial-lift systems such as electrical submersible pumps (ESPs), which are used to bring crude oil to the surface when natural reservoir pressure is insufficient.

Even if disruptions were to persist, any losses would likely remain limited to no more than 800 kbd. “And even that should be viewed as mostly recoverable over time rather than permanently destroyed capacity,” Kaneva said. “Large-scale reservoir capacity is difficult to lose in the Gulf, where operators have decades of experience managing mature fields and temporary shut-ins.” 

Turbulence in OPEC may heavily impact oil prices and predictions

One other long-term factor to consider is how the UAE’s decision to leave OPEC, which took effect May 1, will affect oil markets. “OPEC is losing a key actor,” said Nicolaie Alexandru-Chidesciuc, head of EMEA EM Economics at J.P. Morgan. “With the departure of a member accounting for more than 11% of its 2025 production, OPEC’s ability to stabilize the market will be diminished, as the UAE’s sizeable spare capacity will also be lost to the group.”

The UAE, which contributes around 1.4% of global oil supply, has vowed to increase production in the second half of the year, with authorities aiming to expand capacity to 5 mbd by 2027 — or roughly 1.5 million barrels higher than current levels. But losing coordinative ability makes the situation more difficult to predict.

Kaneva believes that moves like the UAE’s could contribute to another surprising scenario: an oil oversupply, which could occur as soon as late summer. “The first surplus will emerge in August, at around 1.2 mbd, as Persian Gulf supply recovers to about 90% of pre-war volumes, rising further to 97% in October and reaching near full recovery in November,” Kaneva predicted. “This backdrop ultimately sets up a reversion toward a $60/bbl price regime, with prices moving into the low $60s beginning in the second half of 2027.”