Crude oil exports through the Strait of Hormuz are slowly recovering after more than half a year of conflict between the United States and Iran but oil prices still face risks, recent analysis from TD Bank says.

Global oil markets are “still far from functioning normally,” TD economist Marc Ercolao said in a report. Oil prices have remained elevated despite more crude oil moving through the contested waterway, the report said.

The report outlines two reasons behind the uncertainty, the first being that the risk of further disruptions in the oil market supply chain “remains materially higher than before the war.”

While more barrels of crude oil have started to move through the region, they are moving through “more complex and less transparent routes.”

This has meant higher freight costs, as well as higher cost of insurance and other logistics for the oil market.

Aside from higher gas prices for consumers, diesel remains a major pressure point for the market. Unlike higher gasoline prices, Canadians pay indirectly for higher diesel costs since the fuel is used to power trucking, agriculture, construction, mining, rail, marine transport and some industrial activity.

“Diesel is currently the tightest part of the barrel,” the report says.

Earlier this month, members of the G7 – including Canada – agreed to collectively release 100 million barrels of reserve crude oil and diesel to ease pressure on global markets.

The joint G7 statement cited “unprecedented volatility in oil markets” and “surging prices threatening economic stability and the well-being of our citizens.”

While the move can provide “some near-term relief” for oil markets, it is “not enough to reset the market,” the TD analysis said.

“The measures alone do not directly address some of the more structural issues and will not create new refining capacity or fully offset disruptions in broader global trade flows,” the report said.

Average gas prices in Canada on Tuesday were $1.76 per litre, across the country, CAA’s gas price tracker showed.

While this was below last month’s high of $1.83 and the highs of $1.90 seen in May, it was significantly higher than the $1.29 per litre gas prices a year ago.

While gas prices in the U.S. have moved lower in recent weeks, they remain higher than a month ago. Gas prices averaged US$4.33 per gallon on Wednesday, according to AAA, up slightly from a month ago.

The International Energy Agency is lowering its world oil demand forecast for the year, noting that the war in Iran is leading to escalating fuel prices, limited oil supplies and a deteriorating economic outlook.

The agency’s report on Wednesday said that global oil demand is predicted to drop 2.5 million barrels a day year-over-year in the fourth quarter and fall 2.6 million barrels a day on average this year.

Diesel is expected to account for 25 per cent of the drop.

The IEA foresees a partial recovery of two million barrels a day next year, but that still puts global oil use 0.6 per cent below 2025 levels.

Global production climbed 2.5 million barrels a day month-over-month to 102.3 million barrels a day in September, driven by Gulf producers. OPEC+ gains of 2.1 million barrels a day were led by Saudi Arabia, while the United Arab Emirates drove non-OPEC+ increases.

Oil supply is expected to drop by 5.8 million barrels a day to 100.7 million barrels a day this year before climbing by 7.7 million barrels a day next year. The agency said that renewed Gulf attacks “leave the recovery fragile.”

–with files from Associated Press