Last month, US President Trump issued a 60-day waiver for the Jones Act in an attempt to lower oil prices amid severe supply disruptions caused by the closure of the Strait of Hormuz. The Jones Act, also known as the Merchant Shipping Act of 1920, is a federal law that requires all cargo transported between US ports by waterway to be carried on vessels built, owned, and flown by the US flag and operated by US crew.

The bill aims to ensure a reliable domestic shipbuilding industrial base and skilled seafarers during wartime or national emergencies, while protecting the U.S. shipping industry from foreign competition.

However, the exemption did not achieve the desired effect. As the exemption approached its 30th day, oil prices remained high, with supply disruptions and changes in market incentives largely offsetting its impact.



"It is estimated that this exemption will have an impact of only about 3 cents per gallon on East Coast oil prices, and the impact on the Gulf Coast may be slightly larger, but these changes are too small to be completely masked by the overall sharp rise in oil prices, which continue to rise," said Usha Haley, a professor of management at Wichita State University.

Oil prices have retreated in the short term, mainly due to optimism in diplomacy and downward revisions in demand expectations.

On Tuesday (April 14), oil prices continued to fall from recent highs, mainly due to renewed hopes for diplomatic negotiations between the US and Iran, while the International Energy Agency (IEA) and OPEC significantly lowered their global demand forecasts. Around 13:45 Beijing time on Tuesday, Brent crude for June delivery fell 4.2% to $95.09 per barrel; WTI crude for May delivery fell 7.0% to $92.15 per barrel.

The International Energy Agency (IEA) predicts that high oil prices will trigger demand destruction, and has significantly lowered its 2026 global oil demand forecast from a previous increase of 640,000 barrels per day to a contraction of 80,000 barrels per day. The agency expects demand to fall by 1.5 million barrels per day in the second quarter of 2026, the largest drop since the COVID-19 lockdowns. The IEA stated that the Asia-Pacific and Middle East regions will be the hardest hit by demand destruction, primarily affecting liquefied petroleum gas (LPG), naphtha, and jet fuel.

Just days before the International Energy Agency released its forecast, OPEC also lowered its global oil demand forecast for the second quarter of 2026 by 500,000 barrels per day, now expecting average demand of 105.07 million barrels per day, down from its previous estimate of 105.57 million barrels per day. However, OPEC maintained its full-year demand growth forecast for 2026 at 1.38 million barrels per day.

Although oil prices have fallen significantly from their multi-year highs reached in March, they remain $20-25 per barrel higher than pre-war levels. Besides the Strait of Hormuz blockade, export arbitrage is also a factor supporting higher prices. US refineries earn far more profit from exporting fuel to Europe and Asia than from domestic sales. Long-haul export voyages consume significant shipping capacity, leading to a sharp increase in freight rates both domestically and internationally. Coupled with higher operating costs for foreign refineries, selling overseas is more profitable than the domestic market. Currently, European diesel futures prices have exceeded $200 per barrel, while US diesel futures prices remain below $185.

The spot and futures markets are severely disconnected, with the physical market reflecting a genuine shortage.

A significant mismatch exists in the current market: physical spot oil prices are significantly higher than paper futures contracts, with countries scrambling to purchase readily deliverable crude. The futures market is still pricing in short-term disruptions or optimistic ceasefire prospects, while the physical spot market is pricing in immediate scarcity and physical constraints. Refineries in Europe and Asia are fiercely competing for alternative crude oil from non-Middle Eastern regions such as the North Sea, resulting in a substantial spread of approximately $35-40 per barrel between spot and futures prices.

In addition, the oil curve exhibits an extreme spot premium structure, with near-month contracts trading at a significant premium to far-month contracts, indicating that the market expects future supply to far exceed current supply.

With the blockade continuing, diplomatic negotiations become crucial.

Global oil flows and short-term oil price trends will ultimately depend on the resolution of the latest impasse between Washington and Tehran.

U.S. Central Command (CENTCOM) reported Tuesday that no ships successfully passed through the U.S. naval blockade, contradicting previous reports that at least three or four Iranian-linked vessels had transited the Strait. Currently, more than 10,000 U.S. Navy, Marine Corps, and Air Force personnel, along with more than a dozen warships and dozens of aircraft, are carrying out the blockade order issued by President Trump following the breakdown of peace talks in Islamabad.

Iran has called it "piracy" and accused it of violating Iranian sovereignty. The US and Iran are expected to resume negotiations this week.

Overall , while the temporary exemptions under the Jones Act failed to effectively alleviate oil price pressures, current market movements remain highly dependent on the progress of diplomatic negotiations and the actual implementation of the Strait of Hormuz blockade. In the short term, the divergence between tight physical supply and optimistic expectations in the futures market will continue to dominate oil price fluctuations.


Brent crude oil daily chart source: EasyForex

At 13:28 Beijing time on April 16, Brent crude oil futures were trading at $94.97 per barrel.