Brian Arcese, portfolio manager at Foord Asset Management

For some weeks, the oil market hastily chose to believe in the US-Iran ceasefire deal. After the adversaries announced a 60-day pause and a path to reopening the Strait of Hormuz, Brent crude quickly fell towards $70 a barrel, from more than $110 in May. Renewed fighting in July has sent prices sharply higher - and prices are moving faster than facts.

Traders are quick to price in relief, but the physical market is always slower to adjust. Even during a ceasefire, tankers must be persuaded to pass through the recently mined strait. Insurers must cut war-risk premiums. Ships that diverted to safer and more profitable Atlantic routes must return. Gulf producers must restart output, while refineries damaged by Iranian strikes must raise throughput. None of this happens overnight.

Events of early July proved the point. Attacks on commercial vessels in the strait, renewed US strikes and the revocation of the waiver permitting Iranian crude sales sent Brent back above $80 within days. The market's optimism, it turns out, had run well ahead of the physical and political reality.

During the worst of the disruption, the world avoided catastrophe through three buffers. Firstly, China cut crude imports, partly by drawing on reserves and partly by cutting demand. Then, America exported more crude and refined products, helped by releases from its Strategic Petroleum Reserve. Finally, other producers — including Brazil, Canada, Norway and Venezuela — added barrels at the margin.

These buffers bought the market time and capped a more extreme oil-price increase. Looking forward, China may soon want to rebuild stocks rather than drain them. America’s Strategic Petroleum Reserve is already at a four-decade low. The pace of releases is expected to slow dramatically, or stop completely. Europe has done less than it might appear, because much of its emergency oil is held in commercial tanks rather than dedicated state depots. Global reserves are thin and, in some cases, close to minimum operating levels.

These factors limit how far crude prices can fall, even if Gulf production returns smoothly after a more durable ceasefire. But a sustainable move much below the mid-$70s per barrel would require more than diplomatic optimism — it would require ships, refineries, reserves and end-users all to behave as if the shock was truly over. They are unlikely to do so quickly. The market will retain some risk premium for Iran, some scarcity premium for low inventories and some restocking premium for the barrels governments and consumers must replace.

The inflation story is also not straightforward. Lower crude prices will help headline inflation, especially in economies where fuel prices adjust quickly at the pump. They also ease pressure on central banks facing renewed energy-driven price rises. But crude oil is only the first price in the chain. Petrol, diesel, jet fuel, LPG and naphtha matter more to households and companies, and these refined products remain exposed to refinery bottlenecks, shipping delays and regional shortages. Africa is short of petrol. Europe relies on Gulf diesel and jet fuel. Asia needs naphtha and LPG. American refiners may swing back towards petrol for the home market, but low domestic stocks mean pump prices may remain sticky.

The immediate disinflation from cheaper crude prices may therefore prove real but shallow. The larger risk is that the oil price remains too high for central banks to declare inflationary victory. If inventories must be rebuilt just as summer travel lifts fuel demand, oil may become less of a shock but more of a floor under already elevated inflation.