Conversation on Oil Prices – March 2, 2026

For the purposes of this conversation the intention is to talk about oil volatility, what we are not talking about is oil production nor climate change. Another conversation for some other time.

With more chaos going on across the greater Middle East region, one of the secondary subjects covered by various networks is oil prices.

“US stocks recover, gold rises and oil surges as war with Iran spreads” – CNN

“Oil prices surge as Strait of Hormuz tanker disruptions rattle global supply” – ABC News

“Oil prices surge after strikes kill Iran’s supreme leader, tankers hit near Strait of Hormuz” – Fox News.

You get the idea.

Natural question – Why are Oil prices so volatile?

The short answer is supply and demand of oil are inelastic.

Slightly expanded, the supply and demand for oil, and thus oil products, does not change much in response to price shifts in the short or medium term. Oil producers cannot easily adjust oil outputs, the whole “turn off the spigot” rhetoric is a bit misleading, and at the same time oil and oil product consumers cannot switch fuels quickly to deal with erratic fuel prices.

It takes years to develop new sources for oil and downstream handle production changes for output capacity. Consumers of these products are more or less locked into both transpiration and heating as a demand, prices can go up and down double digit percentages and people still need to drive their cars and heat their homes.

That said, there are external factors as to why oil prices are subject to periods of real volatility.

As being proven from the news over the past couple to three days, geopolitical instability among oil producing nations can become serious influences into oil price movements. Oil outputs, shipping disruptions, production and distribution of outputs all fall into this category.

Oil “futures” for April and forward month settlements (perhaps explain that later) are up over 8% or $5.60 per barrel from just today’s trading session. Both the multiple direction fighting in the region but also the Strait of Hormuz is right there south of Iran and it sees 20% of the global daily supply are to blame. A real time example of the hyper-sensitive nature of oil prices over news like what dominates today.

But there are other influences. Example, the Organization of the Petroleum Exporting Countries (OPEC) and their allies organize frequently to deal with supply and by group decision control just shy of 80% of global oil reserves. Production targets by increase or decrease of supply can also have immediate influences on oil futures.

Speculation from all of this, the buying and selling of contracts, up to the point of each month’s settlements also amplify more short-term volatility. Not just from the news we all hear about each day, or seasonal influences, but the speculation of supply and demand for a given contract. Lest we forget various political influences into what oil can be retrieved, how much can be refined, etc.

The only other elements worth mentioning are natural shocks from disasters, like hurricanes shutting down production or distribution, or even immediate changes in supply and demand from sudden crises like the Covid pandemic. More rare of course but also very volatile influences on both supply and/or demand usually resulting in some aggregate shift.

But for today, every oil futures month out to year end is seeing price increases (as speculation) through December. Odds are plenty of that will change in the coming months, but the point is we all still demand oil and oil products and something like more conflict breaking out across the Middle East. You will see these jumps at the pump in short order.

A moment for some technicalities…

Also for the purposes of this conversation, it is not worth getting bogged down why there are differences between Brent Crude and West Texas Intermediate (WTI,) but know that Brent Crude is the global benchmark covering roughly 70% of the world’s internationally traded oil. WTI is a US oil benchmark, priced out of Oklahoma and really only covers oil traded here.

That said, oil is traded as a global commodity because the product itself is fungible in that one barrel is largely interchangeable with another of the same quality. Light sweet crude up to extra heavy (sometimes called Bitumen) a distinguishing element, but one barrel of the type is roughly equal to another. Since there are so many types of oil then market benchmarks makes international trade, what ends up in a pipeline or a boat, what ends up in a giant tank, and so forth is less complicated. Also note, “barrel” is not a literal 42 gallon container but a measurement standard.

At present, roughly 80% of all global oil transactions are settled in US dollars as the currency exchange between buyer and seller. That means everyone in the mix of that 80% are in a nation where US dollars are there as reserve (i.e. one of the core reasons the US dollar is the primary reserve currency.)

For the most part, “contracts” from the futures markets are “locks” on prices for delivery of oil for months in advance and for a period of time. This allows for major refiners down to airlines to hedge against price spikes and also speculators to have buy sell “liquidity” for price movement positions.

Large international oil producers, various nations as buyers or sellers (sometimes both and don’t bother asking as it is complicated,) allows for usually normal global level interconnected trade where oil tends to move predictably. Moving oil with long range international pipelines or large supertankers ends up “low cost.” Again, from the above, the supply and demand for oil is inelastic so shipping does not move the needle all that much.

But, when conflicts and wars break out regional disruptions may happen forcing buyers to “out-bid” other buyers obtaining oil from alternate places. In that case, suddenly moving oil becomes a different consideration. Example, a middle eastern nation as the seller has some issue with production output making a buyer like China look elsewhere. North American, South American, or African nations may be the new seller. Even if short term, or stopgap oriented. Those are price drivers impacting something like what you are seeing with today’s trading news.

Because of all this, what happens in any one location around the globe impacting oil ends up by price impacting us all. Does not matter if US domestic oil production tends to meet about 66% to 70% of the US total oil need, what happens elsewhere impacts our own pricing. In this example, the US still relies on imports to supplement both regional demand and refinery specific requirements by oil type. In fact, the US still imports oil products (like gas, diesel, or heating oil) even if we domestically can produce the same things. Why? Regional needs, location of source to destination (like oil sands from Canada as an example.)

Point is, the US nor any other nation is a closed system of oil extraction to product outputs for all purposes entirely isolated from the rest of the planet.

Question – Can anything be done about price spikes?

Sadly, no… kind of.

Because of how oil is extracted, moved around, refined into hundreds of products used in thousands more, and ultimately in a position of consumption all that could be done for a single nation is to go into their own strategic reserves. And we are not quite there yet.

Currently the US’ oil reserves are looked at in two categories. The government controlled Strategic Petroleum Reserve (SPR) as protected status located in underground salt caverns in Texas and Louisiana then the various Commercial Inventories sprinkled all over the US (think large oil containers and tank farms at or near refineries and terminals.)

Before you ask, no the salt caverns bit was not a misprint.

Look at this as massive and hollowed-out containers shaped as kind of large bottles located hundreds, if not thousands, of feet underground in naturally occurring salt domes that end up cheaper and safer than above ground steel tanks. They are literally geological formations altered to create these massive virtually leak-proof underground containers. Measurement of storage is accurate. And there is roughly 60 of them at several storage sites (controlled means to get oil in and out) along the Gulf Coast.

Anyway, the current SPR is at a two year record high level post replenishment from the 2021 to 2022 record draws from. Contracts with the US government allow for oil going in or out and are usually a set volume over a period of time altering overall current reserve status month to month. But as capacity we are at 58%, and looking back this number is all over the place year to year and administration to administration.

Because we already know the commercial crude inventory levels side of all this has plenty on hand, at a near 3 year high, there are no immediate plans to release from SPR anytime soon. And that is more on the good news side than not.

Question – Any reason to be concerned?

Yes and no, we know prices for oil and oil prices is on the rise but over the past 5 years, give or take, the trend is still headed downward.

We may be spiked above the $73 range today, but in 2025 we’ve seen prices as high as $77.39 and in 2024 prices as high as $86.91. It gets a bit worse looking back as in September of 2023 the high end was $90.79.

When you are hearing mainstream media go on about this subject you might want to add in some perspective of history, oil prices and various events, keep in mind the why the coverage of this is what it is against the severity of it. There is a time to reconsider future planning for travel and so forth assuming no massive escalations over and above the mess we are seeing today.

Might argue there is little to be concerned about other than seeing the lower than normal prices at the pump erased, but also argue since we do not know the conclusion for this round of instability we cannot be for certain if prices for oil and gas will level off or get worse.

It will take time to tell.