Nothing is static, particularly forecasts. Those who expected U.S. oil production to plateau or even decline this year have been seriously wrong-footed by unforeseen circumstances, namely the eruption of hostilities in the Middle East.

The original reasoning stood on solid ground. Capital discipline, the prioritisation of shareholder returns, and comparatively subdued oil prices all pointed to a potential contraction in U.S. crude oil production. In its January 2026 Short-Term Energy Outlook, the EIA envisaged an annual decline of 200,000 bpd in 2026 and a further 240,000 bpd in 2027. After all hell broke loose in the Persian Gulf at the end of February, however, these projections were revised as the region's pivotal chokepoint, the Strait of Hormuz, was shut. In its latest monthly report, the EIA now sees output growth of 210,000 bpd this year and 430,000 bpd next year. The bifurcation in the outlook, as illustrated in the chart above, began immediately after the conflict erupted.

The flexibility of U.S. oil producers in general, and shale companies in particular, is admirable on the one hand and understandable on the other. The short-cycle nature of the shale sector has effectively made the United States the swing producer of the global oil market. Companies rushed to answer the call. U.S. crude oil exports, which stood at 3.86 mbpd in 2025, have averaged 4.29 mbpd since March, peaking at 6.44 mbpd during the week ending April 24, when the United States became a net exporter of crude oil for the first time.

And what about the price impact? Common sense suggests that elevated demand for U.S. crude oil should support its outright price, its differential to international benchmarks, and the structure of domestic grades, chief among them WTI, the flagship CME crude oil contract. While this assumption has proved broadly correct, both outright prices and spreads have remained highly volatile, just as U.S. crude oil exports have fluctuated between 3.06 mbpd and 6.44 mbpd over the past eight months.

As perplexing as this phenomenon may seem, there is a method to the madness. The value of a barrel is determined not only by its price but also by the cost of transporting it. Innovation, embodied by ship-to-ship transfers, proved effective in circumventing the Strait of Hormuz last month but created a shortage of available vessels, pushing freight rates to record highs. This, in turn, made U.S. crude oil less attractive to Asian and European buyers. The M1/M7 WTI spread fell from $24/bbl in mid-September to $5/bbl three weeks later, during which period the WTI-Brent arbitrage weakened from -$3/bbl to -$12/bbl. This trend reversed during the first half of October following the partial lifting of sanctions on Russia, including measures affecting its shadow fleet, which raised expectations of lower freight rates. The M1/M7 WTI spread rose to $14/bbl before the expiry of the November contract, while the arbitrage strengthened to above -$6/bbl.

Elevated geopolitical tensions, the flexibility of U.S. crude oil producers, and their newly found role as marginal exporters can create rewarding trading opportunities. Demand for U.S. crude, however, is shaped not only by the price of the barrel but also by freight rates and even insurance costs, which are themselves influenced by foreign policy decisions in the Middle East and Russia. Taking advantage of volatile trading conditions is only possible when these defining factors are monitored rigorously.