Brent oil has fallen below $75 for the first time since the start of the Iran war, dropping as much as 3.1% to its lowest level since February 27. This decline is largely attributed to a significant increase in tanker traffic through the Strait of Hormuz, with vessels now openly transiting the waterway with satellite signals on, indicating growing confidence among shipowners. The International Maritime Organization has also confirmed safety guarantees that allowed hundreds of ships to exit the Persian Gulf.
The increase in supply is further supported by early progress in peace talks between the U.S. and Iran, although negotiations are expected to be lengthy. The International Energy Agency estimates that the United Arab Emirates is already exporting oil at nearly 85% of pre-war levels. The steady increase in traffic through Hormuz, combined with alternative supply routes established during the conflict, has led to a collapse in prices for physical crude barrels.
The nearest Brent futures timespread is showing weakness, and premiums for crude from the North Sea to West Africa are tumbling. Oil prices are now down approximately 40% from their peak during the war. The increased flow includes about 60 million barrels sold by the UAE from within the Persian Gulf in recent weeks, with a total of about 20 million barrels of crude passing through Hormuz on Friday, Saturday, and Sunday alone. This marks the fastest transparent flow since before the war began at the end of February.
The influx of oil comes as three previously stranded tankers, carrying a combined 5 million barrels of crude, are exiting the Strait of Hormuz. These include the VL Breeze with 2 million barrels of Qatari condensate and Abu Dhabi crude heading to South Korea, the VLCC Plata Carrier with 2 million barrels of Saudi crude, and the Suezmax tanker Prudent Warrior with 1 million barrels of Iraqi Basrah crude. Overall, 18 of the 26 vessels stranded since the start of the conflict remain in the Gulf, but the reopening of the Strait is rapidly adding supply to the global market. The re-opening is allowing nations like the UAE to re-export and is allowing countries who had oil stored in the Gulf to retrieve it. Qatar also expects to resume normal LNG production within weeks.
Despite the global drop in oil prices, U.S. gasoline prices, while declining 14% since late May to below $4 per gallon, remain above the five-year seasonal average. Former President Donald Trump has called for a Department of Justice investigation into why gasoline prices haven't fallen faster. Meanwhile, U.S. retail diesel prices have dropped below $5 per gallon for the first time since mid-March, though crude inventories at Cushing, Oklahoma, fell by another 1 million barrels last week, nearing the critical 20 million-barrel minimum operating level.
