The Oil Glut That Wasn’t

Energy... You can get it by dammin’ up a river Energy... A windmill can make the breeze deliver But even with millin’ and dammin’ Our needs are so much more demanding For energy... We have to use some kind of fuel.

—Schoolhouse Rock!

If you remember Saturday mornings with Schoolhouse Rock!, you probably remember waiting in lines at the gas station to fill the tank of the family station wagon. Back in the 1970s, OPEC sent the US a message: You are not as resilient as you think. You need us. 

A lot has changed since then. Today, the US is the world’s largest oil producer. 

The common narrative regarding oil in the past year goes like this: Oil is in oversupply, prices are heading lower, and the era of tight crude markets is over. It’s a narrative that has been pushed by serious, well-credentialed analysts and politicians.

There’s just one problem: The market doesn’t believe it.

To find out why, I called Jan Stuart, global energy strategist at Piper Sandler. His answer was refreshingly blunt: Look at the screen. WTI is north of $65, and the curve is in backwardation. Same goes for Brent: higher price, steeper backwardation. When a market is in backwardation, it’s telling you that physical supply is tight. That’s not a glut.

Since we recorded our conversation two days ago, the market has moved—sharply—in a direction that validates Jan’s bigger thesis in real time.

The Strait of Hormuz Is Back on the Table

The United States has deployed a military force to the Middle East unlike anything we’ve seen (from the US) since the buildup before the 2003 Iraq invasion. Two aircraft carriers—the USS Abraham Lincoln already on station, the USS Gerald R. Ford en route—along with fighter jets, refueling tankers, and naval assets are now massed in the region.

President Trump has given Iran a short window to reach a nuclear deal, saying publicly he’ll decide whether to strike within the next 10 days. Meanwhile, Iran’s Revolutionary Guard has been running military exercises in the Strait of Hormuz, and Tehran announced joint naval drills with Russia in the Sea of Oman.

Brent has spiked more than 7% over just two days, vaulting to around $71 a barrel (the highest level since August 2025). WTI gained more than 1.7% on Thursday, trading near $66.30 a barrel.

 Source: Bloomberg

The reason traders are nervous is straightforward. Iran itself accounts for a relatively small slice of global output. But the Strait of Hormuz… that’s a different story. About 13 million barrels per day (mb/d) of crude were shipped through the strait in 2025, accounting for roughly 31% of global seaborne crude flows.

Source: Geopolitical Futures

There is no way to reroute that volume if the strait is closed. And if Iran retaliates against Gulf Arab infrastructure, as it did at Abqaiq and Khurais in 2019, you don’t just lose Iranian supply. You lose the spare capacity that is supposed to buffer the market against exactly this kind of shock.

Saudi Arabia holds roughly 2–3 mb/d of spare capacity, the UAE is expanding toward about 4.5 mb/d, and Kuwait is aiming for 3.2 mb/d. But a scenario involving attacks on Gulf Cooperation Council (GCC) infrastructure or the blocking of the Strait of Hormuz would strand all of it.

Jan’s Bigger Point, Playing Out Live

This is the scenario Jan explains after I asked him why China had been building oil inventories so aggressively throughout 2025. Some analysts believe this is a sign China is preparing for war.  Jan’s answer was more nuanced. China imports more than 10 million barrels of oil a day, virtually none of it through pipelines it controls. It moves by sea. In a world Jan describes as experiencing a genuine “rupture” of the post-WWII global order (to borrow Carney’s term), that’s a dangerous vulnerability. As Jan puts it, “When you ask a Chinese military planner how many barrels it should have in reserve, the answer is always more.”

As Jan frames it, we are witnessing the end of Pax Americana. The rules-based international order that governed global trade and kept the Strait of Hormuz open for 80 years is no longer something any serious planner can take for granted. That’s not alarmism. It’s the operating assumption of every military and energy ministry in Asia right now.

And yet, Jan’s oil market call isn’t dire. His baseline view is constructive on demand. He had 1.9 million barrels a day of oil demand growth in his model for Q4 of this year, the highest reading since 2017. That kind of forecast helps explain the geopolitical risk premium we are seeing in the markets.

Oxford Analytica’s Middle East senior analyst described the current situation as “extremely dangerous,” with the US and Iran “certainly closer” to outright conflict than just last week. Some progress was reported from Geneva talks, but the White House was quick to add that the two sides remain far apart on core issues. A diplomatic off-ramp exists. But the military assets are real, the clock is ticking, and the Strait of Hormuz sits at the center of it all.

Jan’s point about there being no price-depressing glut looks very different today than it did even a week ago. We were already in a market that was tighter than the headlines suggested. Now we have a genuine supply-disruption scenario sitting squarely in the risk column.

I encourage you to watch my full conversation with Jan here.

Click the image above to watch my full interview with Jan Stuart.

A transcript of our conversation is available here.

You can learn more about Jan Stuart here.

Thank you for watching and reading,

Ed D’Agostino

Partner & COO