Supply recovery, not demand, will be oil market’s key test: Vandana Hari

Global crude oil prices have retreated sharply from their wartime highs, offering relief to consumers and businesses alike. However, according to market expert Vandana Hari from Vanda Insights it is too early to declare victory, as significant uncertainties continue to surround the reopening of key energy routes and the broader geopolitical settlement.

Speaking to ET Now, Hari said the market appears to be moving in the right direction, but cautioned that traders are likely to remain nervous until a formal memorandum of understanding (MoU) is signed.

“There is the anxiety-riddled four days that I anticipate until the MoU is actually signed, provided it is signed on Friday, as is currently scheduled to be. Overall, my initial reaction is that we are seeing the light at the end of the tunnel, but we are still in the tunnel. A big question mark in my mind is that if the MoU has been agreed, I presume some sort of a verbal agreement, why the four-day wait, and what can potentially go wrong between now and Friday when it is actually signed?”

She added that while Brent crude has fallen substantially from its recent highs, markets may remain trapped in a holding pattern until there is greater clarity.

“I do not see much more sell-off from current levels. Brent is around $83-84, as you were just mentioning, significantly down from the peak, about $11 or so lower than where it was on February 27 before the war began, but probably a holding pattern. A lot of anxiety and potentially volatility will remain until the MoU is actually signed.”

Reopening Process Could Take Months
Even if the agreement is signed as expected, Hari believes the oil market‘s return to normal will be a gradual process rather than an immediate reset.

The reopening of the Strait of Hormuz, one of the world’s most critical oil transit chokepoints, will be closely monitored by traders. According to Hari, restoring normal shipping activity and production levels across the Persian Gulf region could take several months.

“I think right after that the market will keep a very close eye on the transits in the Strait of Hormuz. I expect the normalisation to take at least two to three months—the normalisation of traffic and, let us not forget, the normalisation and return of production. There are upstream elements to keep in mind as well in all the countries that have been affected, the producers within the Persian Gulf.”

She stressed that the path ahead remains uncertain, given the number of unresolved issues that continue to hang over the agreement.

“We have seen so many false starts over more than three-and-a-half months of this war, and there are a lot of big questions still to be settled, not to mention the very contentious nuclear aspects of the agreement, which are to be discussed over the next 60 days. There is the Israel-Lebanon angle as well. So, we cannot assume that it will be an uninterrupted and smooth start.”

As a result, Hari does not expect crude prices to revisit the lows seen before the conflict.

“$60-65, I do not see those kinds of levels anytime this year and potentially not even in early 2027.”

Demand Destruction Never Truly Happened
One of the major debates during the conflict was whether soaring oil prices had led to meaningful demand destruction. Hari disagrees with that characterization.

Instead, she argues that what occurred was temporary demand erosion across certain fuel categories, driven by high prices, weaker margins, and policy interventions.

“I am not in favour of calling what happened demand destruction. I do not think we came anywhere near that. Over the past three-and-a-half months, it was probably demand erosion. Some demand was curbed, especially in jet fuel, with airlines reducing flights and so on; a little bit in diesel, not much in gasoline, and some impact on naphtha and petrochemical feedstocks.”

According to her, much of that curtailed demand could return quickly as prices stabilize and economic conditions improve.

“I expect all of that curtailed demand to start coming back very quickly as prices normalise, provided they remain around current levels or continue to go lower.”

The Next Big Market Test
As the market moves beyond the immediate crisis, Hari believes the key challenge will be balancing the return of demand with the restoration of supply.

During the conflict, strategic petroleum reserve (SPR) releases and reduced Chinese purchases helped cushion supply concerns. Those factors may soon fade.

“I think there is no question of more SPR releases once this reopening begins. Chinese buying was curbed quite substantially over the past couple of months. I expect that to return as well.”

Looking ahead, she sees the next phase of the oil market being defined by how these opposing forces interact.

“I think the next phase in the market over the next six to nine months will be how this balance comes through—the return of demand versus the return of supply through the Strait of Hormuz.”

For now, oil prices may have moved off their crisis peaks, but the market’s long-term trajectory will depend on whether geopolitical stability can translate into a sustained recovery in trade flows, production, and global energy demand.