Seventy-six days after the United States and Israel launched Operation Epic Fury and Iran responded by closing the Strait of Hormuz, the International Energy Agency said on Wednesday that observed oil stockpiles fell by approximately 4 million barrels per day in March and April combined. Even if the conflict ends next month, the IEA projects the global oil market will remain significantly undersupplied until October. The strait has not returned to anything resembling normal commercial traffic. Saudi Arabia has told OPEC its production has fallen to the lowest level since 1990.
The question for Canadian portfolio positioning is no longer whether the Hormuz closure matters. It is how long it lasts, through which mechanisms it transmits to Canadian assets, and whether the Trump-Xi summit beginning this week introduces a new variable that changes the probability distribution.
The Chain of Consequence to Canadian Portfolios
The most direct transmission is the one already visible in price: Canadian energy producers are benefiting from WTI above $100. The S&P/TSX Energy sector has been the standout performer on the TSX this year, and earnings from Canadian Natural Resources, Cenovus, Suncor, and Imperial Oil have largely beaten analyst expectations in Q1 driven by realized oil prices far above the assumptions built into 2026 guidance. Energy stocks on the TSX held roughly steady Wednesday while the broader index fell 0.5% and technology names dropped 2%.
The second transmission is the one that is harder to trade directly: the stagflation dynamic. High oil prices function as a tax on the non-energy economy. Canadian consumers paying 30% more for gasoline since March are spending less on other goods and services. Statistics Canada's March CPI showed the largest single-month gasoline price increase on record. The April Canadian CPI, due May 19, is projected by the Bank of Canada at approximately 3%, and the risk is to the upside given that the full monthly effect of elevated pump prices will be captured for the first time without the base-year carbon levy distortion.
The chart above shows WTI crude price daily from January 2026 through May 14, 2026, with the Operation Epic Fury onset, the April 8 ceasefire, and the U.S. naval blockade activation marked.
WTI peaked near $117 in early April before the ceasefire announcement triggered a sharp pullback. The subsequent reimposition of the U.S. naval blockade and the failure of the Islamabad negotiations have kept prices well above $100. The IEA's Wednesday warning that the market will remain undersupplied until October even with a resolution next month sets the floor for the current range. Source: Trading Economics, NYMEX.
The Trump-Xi Variable
U.S. President Trump is in Beijing this week for a summit with Chinese President Xi Jinping. The meeting agenda includes bilateral trade, artificial intelligence policy, and U.S. arms sales to Taiwan. The Strait of Hormuz crisis is not formally on the agenda, but it is structurally unavoidable: China receives approximately one-third of its crude oil through the strait. The disruption has cost China more than any other single country in terms of supply chain stress and oil import cost.
China's role in any Hormuz resolution has two dimensions. The first is diplomatic: Beijing has maintained back-channel communications with Tehran throughout the conflict and is one of the few actors with sufficient economic leverage over Iran to accelerate a negotiated settlement. The second is strategic: China may calculate that U.S. distraction in the Gulf is advantageous and that its own energy security concerns are best managed by alternative supply arrangements rather than by facilitating a U.S.-Iran deal that strengthens American credibility in the region.
For Canadian portfolios, the Trump-Xi summit outcome matters primarily through its effect on oil prices. A credible signal that China would support a Hormuz resolution would likely push WTI back toward $85-90. A summit that produces no progress, or that deteriorates into a new round of trade friction, would remove one of the few diplomatic off-ramps and support prices at current levels or higher.
The Duration Question and Canadian Energy Exposure
The IEA's assertion that the market will remain undersupplied until October, even with a June resolution, is the most consequential number in Wednesday's energy analysis. It means that even in the most optimistic scenario for the geopolitical situation, Canadian energy producers are operating in a favourable price environment for another five months at minimum. Saudi Arabia's production at its lowest level since 1990 reflects both the Hormuz disruption to Gulf export infrastructure and the broader OPEC response to the supply shock.
The tail risk, which the IEA did not quantify but the situation implies, is an October resolution that arrives into a market that has spent five months drawing down storage buffers. When the strait reopens at full capacity, the demand for restocking will create its own temporary supply surge before prices normalize. The path of Canadian energy stocks through that transition will depend heavily on the speed of the unwind. Gradual reopening supports prices. Abrupt resolution does not.
The base case for Canadian advisors managing energy-weighted client portfolios remains constructive through summer. The contingency to plan for is the abrupt-resolution scenario, where a surprise ceasefire deal could reprice energy names sharply lower in a short window.