Recent developments in the oil market have seen West Texas Intermediate (WTI) crude prices fall for five consecutive days, with the benchmark trading at $86.60 per barrel, more than $4 down so far this week, despite heightened geopolitical tensions between the US and Iran. The Iranian Revolutionary Guards Corps announced attacks on US bases in Bahrain, Jordan, and Kuwait in retaliation for a US strike in Southern Iran, while Israeli attacks in Southern Lebanon have further complicated the situation. However, these escalations have not provided significant upward momentum to oil prices, as investors appear to be growing accustomed to ceasefire violations and inflammatory rhetoric, and remain hopeful for a negotiated resolution to the conflict. As a result, crude prices remain well below the key $100 level [3].
The US Energy Information Administration (EIA) is set to release its weekly Oil Stocks Change report, which is expected to show a seventh consecutive decline, with a consensus drawdown of 4 million barrels for the week of June 5, following a nearly 8 million barrel drop in the previous week. These figures indicate that commercial oil reserves are reaching their lowest levels since 2003, prompting warnings from EIA Director Faith Birol about potential severe shortages in crude supply during July and August as global stockpiles slump. The anticipated EIA report is likely to limit further downside in WTI prices [3].
In Canada, TD Securities' Robert Both has updated the macro outlook, noting that higher oil prices—projected to keep WTI above $95 through Q4—are expected to lift headline CPI to an average of 2.9% over Q2 and Q3, peaking at 3.0% on a monthly basis. Despite a weaker 2026 GDP growth path (0.7% on average annual basis) and a delayed output gap closure to 2028, the Bank of Canada is still expected to keep its Overnight Rate at 2.25% through 2027. Both highlights that while recent CPI data was softer than expected over March and April, the new oil price trajectory threatens to reverse some of that softness. The accumulation of excess supply gives the Bank of Canada more flexibility to look through the oil shock, but as long as near-term growth is forecast to exceed potential output, rate cuts are not anticipated [1].
For the United States, UBS Chief Economist Paul Donovan expects May headline consumer price inflation to rise as higher oil-related costs are passed through to consumers. He notes that firms are able to protect profit margins by raising prices while demand remains steady, with US consumers drawing on savings to absorb higher oil-impacted prices. Donovan argues that Federal Reserve policy implications depend on whether non-oil prices accelerate, which he considers unlikely. He also points out that the political implications of rising oil prices are already visible and may have influenced tariff policy and US policy in the Gulf [2].
CONCLUSION
Despite escalating US-Iran tensions, oil prices have declined, but concerns about tightening supply and rising inflation persist in both the US and Canada. Analysts expect higher headline inflation due to oil, but central banks are likely to maintain current policy stances unless broader price pressures emerge. The upcoming EIA report and ongoing geopolitical developments remain key factors for market participants.