Why Is Oil So Volatile in 2026? Hormuz, Supply, Inventories and What It Means for USO

Summary

The 2026 crude-oil market has experienced extraordinary volatility because several normally separate risks have occurred at the same time:

• Severe disruption to the Strait of Hormuz;
• Middle East production outages;
• Low inventories;
• High refinery utilization;
• Sanctions and geopolitical escalation;
• Rapid shifts in expectations for restored supply.

The scale of the disruption is unusual.

EIA estimates that oil flows through Hormuz fell from approximately 21.6 million barrels per day in Q4 2025 to just 4.9 million b/d in Q2 2026.

On August 23–24, Reuters reported Brent around $93.16 per barrel and WTI around $85.70, after both benchmarks had risen more than 5% during the previous week amid renewed U.S.-Iran tensions and concerns about Middle East supply.

For USO investors, this volatility matters through:

Oil fundamentals

↓

WTI futures

↓

futures curve

↓

USO

↓

OIL(USOON)

Why Is the Strait of Hormuz So Important?

Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea.

Before the 2026 conflict, EIA estimated that about 20.9 million barrels per day moved through the strait in the first half of 2025—roughly one-fifth of global petroleum liquids consumption.

That makes it one of the world's most important energy chokepoints.

What Happened in 2026?

Transit volumes collapsed.

EIA's August 2026 analysis estimates:

Q4 2025: 21.6M b/d

↓

Q1 2026: 14.9M b/d

↓

Q2 2026: 4.9M b/d.

A disruption of this magnitude affects more than crude oil.

It can influence:

• Petroleum products;
• LNG;
• shipping;
• insurance;
• refinery feedstock availability.

What Happened to Oil Prices?

Volatility has been extreme.

EIA reported that front-month Brent traded as high as $118 per barrel on April 29 and fell as low as $72 on June 26 during Q2 2026.

The August EIA report also noted that Brent reached as high as $105 on July 23 after renewed attacks on tankers and additional concerns over alternative shipping routes.

That is a very wide trading range in only a few months.

Why Did Prices Fall Before Rising Again?

Oil markets continuously price expectations, not only current shortages.

When traders expect:

• Diplomacy;
• reopened shipping;
• restored production;
• lower demand,

prices can fall rapidly.

When those expectations reverse, risk premiums can return just as quickly.

That is exactly why geopolitical commodity markets can move violently in both directions.

What Is Happening in Late August 2026?

Reuters reported on August 24 that fewer than 20 commodity vessels transited Hormuz over the weekend, with shipping activity remaining far below pre-conflict norms.

The day before, oil markets were also focused on planned additional U.S. sanctions on Iran and the possibility of tighter regional supply.

This means geopolitical risk remains active rather than fully resolved.

Why Inventories Matter

Inventories act as a buffer between supply and demand.

When global supply is disrupted, countries and companies can initially draw inventories.

But if stocks keep falling, the market becomes more sensitive to further disruption.

EIA's August STEO expects U.S. commercial crude inventories to remain below the 2021–2025 five-year low through the end of 2026, citing high refinery runs, reduced imports and increased exports.

Why Refineries Matter

Crude oil is not the final product consumers use.

Refineries turn crude into:

• Gasoline;
• Diesel;
• jet fuel;
• other products.

In 2026, disruptions have also affected refinery availability and product trade.

Reuters reported in August that refined-fuel shortages in Asia remained severe even as debate continued over headline crude transit volumes.

That can keep the broader energy complex tight even if some crude flows recover.

What Does EIA Forecast?

The August 11 STEO forecasts average Brent near $85 per barrel in Q3 2026, followed by an average around $69 in 2027 as inventories rebuild and most Middle Eastern production returns toward pre-conflict levels.

However, this forecast was completed on August 6, before some of the latest late-August escalation.

Forecasts should therefore be treated as conditional scenarios rather than guarantees.

Why EIA Expects Prices to Decline Eventually

Its central assumption is that:

• Most production gradually returns;
• Hormuz conditions improve;
• Inventories rebuild.

EIA still expects approximately 0.6 million b/d of regional production disruption to remain through the end of 2027.

If recovery is slower than assumed, prices could remain higher.

If recovery occurs faster, prices could fall sooner.

Where OPEC+ Fits

OPEC+ remains another major variable.

Its production policy affects the volume of oil available to global markets.

During a geopolitical disruption, the market therefore needs to assess:

involuntary supply losses

and:

voluntary production policy

simultaneously.

How Does This Affect USO?

USO reacts through WTI futures.

If supply risk pushes near-term WTI sharply higher, USO may benefit.

But the exact return also depends on:

• Curve shape;
• Roll mechanics;
• collateral interest;
• expenses.

For the structure, see:

What Is USO?.

How Does This Affect OIL(USOON)?

OIL(USOON) adds another layer:

2026 oil crisis

↓

WTI futures

↓

USO

↓

OIL(USOON)

Therefore the token can react strongly to geopolitical oil news, but it should not be described as directly owning Middle Eastern crude or directly tracking Brent.

What Could Push Oil Higher From Here?

Potential bullish risks include:

• Further Hormuz disruption;
• More production outages;
• Expanded sanctions;
• Escalation affecting Gulf infrastructure;
• Lower inventories;
• stronger-than-expected demand.

What Could Push Oil Lower?

Potential bearish catalysts include:

• Diplomatic agreement;
• sustained reopening of Hormuz;
• rapid restoration of production;
• weaker global demand;
• inventory rebuilding.

That two-sided risk explains why volatility can remain high even when the fundamental story appears obvious.

FAQ

Why is oil so volatile in 2026?

The dominant drivers include Middle East conflict, Hormuz disruption, supply losses and changing expectations about restoration.

How much oil used to move through Hormuz?

Around 21 million b/d before the 2026 disruption.

How low did flows fall?

EIA estimates about 4.9 million b/d in Q2 2026.

What does EIA expect for Brent?

Its August forecast sees around $85/b in Q3 2026 and $69/b on average in 2027, conditional on supply recovery.

Does higher oil automatically mean higher USO?

Not by exactly the same percentage because futures-curve effects also matter.

Risk Disclaimer

Geopolitical and commodity markets can change rapidly. Current prices and official forecasts can become outdated quickly. This article is educational and should not be treated as a guaranteed forecast.