One lesson from the return of crude oil prices back above $100 per barrel is that US President Donald Trump seems to be hastening the end of the oil age.
Apart from the psychological impact of that extra digit on US voters, there’s nothing intrinsically special about the $100 threshold. But Wall Street, which has spent most of the Iran war feeling decidedly bearish about oil prices, is clearly getting anxious about the latest round of mutual tanker attacks. All the big banks, and even the US Energy Information Administration, raised their 2027 price forecasts this week, and several issued research notes making similar arguments about a “new normal” of prolonged disruption in the Strait of Hormuz.
It’s intuitive that oil prices will jump up when the supply is constrained. And assurances by the Trump administration to the contrary notwithstanding, the supply is definitely constrained: In a report Thursday, S&P Global Energy concluded for the first time since the war started that it “does not project Middle Eastern crude oil production to return to prewar levels by the end of 2027.” But the demand side of the equation is also changing, which could produce a more counterintuitive effect.
As former White House official Bob McNally describes in his timely book Crude Volatility, oil prices tend to swing more widely than other commodities because demand is assumed to be highly inelastic. Slightly cheaper gasoline doesn’t make people rush out to buy new cars, but once you have a car and need to drive it to work, you have to pay up for fuel even if it’s slightly more expensive. In order for the oil market to be physically in balance, a supply shortfall must produce prices high enough to make people stop buying fuel.
Yet what we have seen over the last six months is that the number required to achieve that effect may be lower these days than many analysts realized, thanks to the proliferation of alternative energy sources that have apparently left businesses and consumers with a lower tolerance for pricey oil products. Natasha Kaneva of JP Morgan, in a note this week, observed that since the war started, oil demand has run about 5 million barrels per day below last year, and that “demand has absorbed the largest share of the [price] shock.” Some of this demand destruction is not related to prices, but due to the physical destruction of Russian refineries by Ukrainian air strikes and to reduced runs at Gulf refineries that have no way to export products. Still, price is the key factor, and if the strait remains in its current state of semi-closure, Kaneva predicts demand next year will fall to its lowest point since 2019.
In other words, rather than being Big Oil’s biggest booster, Trump could be dragging forward the moment of peak consumption.