Oil is making its way out of the Strait of Hormuz after US President Donald Trump signed an interim peace deal with Iran. This development has led to an immediate market reaction, with oil futures and retail gasoline prices falling. Brent crude briefly touched its lowest point since early March, and European natural gas prices reached an almost two-month low. The White House noted these changes, tweeting that "Oil is flowing and gas prices have begun tumbling down, now BELOW $4 per gallon nationally." More than 100 oil tankers were trapped inside the Persian Gulf before the peace deal, and currently, ships carrying nearly 10 million barrels of oil have either exited the strait or are in transit.
Around 31 supertankers, carrying approximately 62 million barrels of crude, are currently positioned inside the Persian Gulf and are expected to sail out once the waterway fully reopens. This impending wave of oil is anticipated to "swamp" Asian refiners who had previously adjusted to compensate for lost supply. The crude could reach India in about a week, and East Asia in roughly three weeks. Some traders suggest that Asian refiners might need to utilize operational storage tanks or increase processing rates to handle the influx of oil.
This increase in supply comes at a time when Asian refiners are already well-stocked for June and July. Persian Gulf suppliers, such as Abu Dhabi National Oil and Kuwait Petroleum, have been actively marketing their supply and moving barrels out of Hormuz. Additionally, oil production in Iraq has surged and is projected to continue its upward trend. Goldman Sachs Group analysts, including Daan Struyven, predict that Persian Gulf exports will normalize to pre-war levels by the end of July. However, Goldman Sachs also noted in a separate report that oil flows through the Strait of Hormuz might only recover to about 70% of their pre-war levels, as regional producers increasingly rely on alternative routes.
The impending oversupply has already impacted prices, with the forward curve for benchmark Middle Eastern crudes like Dubai and Murban shifting into a bearish contango pattern for the first time since the start of the conflict. Oman crude is now priced at a discount to its underlying Dubai benchmark, a reversal from its usual premiums. Furthermore, at least one diesel cargo traded at a discount to its benchmark this week, differing from previous premiums. Some South Korean refiners are offering larger-than-usual amounts of distillate fuel, which includes diesel and jet fuel, indicating efforts to move supply to market before a full reopening of Hormuz depresses prices further.
At least four Saudi oil supertankers from Bahri, Saudi Arabia's national shipping company, that had been idle in the Indian Ocean for weeks, have now set sail toward the Gulf of Oman. Additionally, three other Bahri tankers, previously stranded in the Persian Gulf for months, exited the Strait of Hormuz earlier today. Kuwait has also begun increasing its oil output and aims to exceed $2 million barrels a day within a week.
