The Strait of Hormuz is back in business after more than 100 days of disruption, with over 60 million barrels of crude set to leave the pipeline. Following a US-Iran peace deal, one of the world’s most important oil routes is set to reopen, releasing millions of barrels of crude that had been stuck inside the Persian Gulf. However, the return of crude shipments back into the market could create a problem that looked unthinkable just weeks ago — an oversupplied market.For Asian refiners that spent recent weeks rushing to secure alternative supplies, the sudden return of those cargoes could quickly turn concerns over shortages into worries about too much oil on the way.According to Signal Group data cited by Bloomberg, around 31 supertankers carrying an estimated 62 million barrels of crude were stranded inside the Persian Gulf and are expected to begin sailing once the key shipping route reopens.The development comes after an interim agreement between the United States and Iran that is expected to allow the resumption of traffic through the strait.
Markets to get too ‘oily’
The crude cargoes could reach India in about a week and East Asia in roughly three weeks.However, the arrival of these volumes comes at a time when many Asian refiners are already well supplied for both this month and next after moving quickly to secure replacement barrels during the conflict, traders familiar with the matter said. They added that refiners had also reduced processing rates as elevated oil prices weakened fuel demand.The situation marks a sharp shift from the early days of the conflict, when oil prices surged and market participants warned of significant supply shortages. During that period, refiners increased purchases from regions such as the United States, while China largely remained absent from the market and countries like Japan drew on domestic inventories.Meanwhile, producers in the Persian Gulf, including Abu Dhabi National Oil Co. and Kuwait Petroleum Corp., have continued to market supplies and move some cargoes through Hormuz. These additional volumes are now contributing to the expected increase in supply.Traders said that the incoming crude volumes could be substantial enough to prompt refiners to store barrels in operational tanks or increase processing rates.“We now assume that Persian Gulf exports normalize to pre-war levels by the end of July,” Goldman Sachs Group Inc. analysts including Daan Struyven said in a note cited by Bloomberg.
Bearish contango in market
Oil market pricing has already begun reflecting expectations of increased supply. The forward curve for benchmark Middle Eastern grades such as Dubai and Murban has shifted into a bearish contango structure for the first time since the conflict began. Oman crude also traded at a discount to its Dubai benchmark this week, reversing its typical premium. In addition, at least one diesel cargo changed hands at a discount to its benchmark, compared with earlier trades at premiums.Traders also said that at least one South Korean refiner had been offering a larger-than-normal volume of distillate fuels, including diesel and jet fuel, for sale. They said refiners were seeking to bring supply to market before the full reopening of Hormuz, which could put further pressure on prices.
Inside the US-Iran MoU
The expected reopening of the Strait of Hormuz is part of a broader memorandum of understanding (MoU) between the United States and Iran aimed at ending military confrontation and creating a framework for future negotiations.The 14-point MoU, signed virtually by US President Donald Trump and Iranian President Masoud Pezeshkian on Thursday, outlines steps to restore commercial movement through the Strait of Hormuz, release Iran’s frozen assets, provide $300 billion for reconstruction and begin a 60-day negotiation process covering sanctions relief, economic cooperation and Iran’s nuclear programme.While the agreement sets out a pathway towards a final deal, both sides must still negotiate a comprehensive accord within 60 days. According to Reuters, citing a US official, the parties can still walk away from the memorandum of understanding they are set to sign on Friday. Upcoming negotiations are expected to focus on the sequencing of the measures outlined in the preliminary agreement.If implemented, the arrangement would offer both countries significant strategic, economic and diplomatic benefits while paving the way for longer-term discussions between Washington and Tehran.
