Oil prices have continued to decline, with Brent crude falling by 4% to $73.97 per barrel and West Texas Intermediate trading at $70.36 per barrel, reaching figures not seen since the conflict began in late February. This decline is largely attributed to the increase in shipping traffic through the Strait of Hormuz, with 31 verified crossings reported in one day, spanning various vessel types including crude tankers. This surge in traffic follows initial peace talks between the US and Iran and indicates growing confidence among shipowners, with vessels now transiting the waterway with their satellite signals switched on.
The improvement in the situation has led to expectations of increased crude supply. The US has temporarily allowed purchases of Iranian oil as part of the diplomatic process, a move expected to significantly boost Iran's exports, which had collapsed to 329,000 barrels per day in May—an 85% drop from February's 2.2 million barrels per day. Middle Eastern producers, including the UAE, are also rapidly restoring exports; the UAE has reportedly recovered to nearly 85% of pre-war levels.
While the immediate focus is on the return of Gulf crude to the market, market analysts suggest that despite the current price decline due to a potential short-term glut, a return to the pre-war Brent range of $60 to $70 is unlikely in the medium term. This is due to severely depleted global inventories, which were drawn down at an unprecedented pace during the disruption, and the need to rebuild strategic reserves. The geopolitical risk premium associated with Middle Eastern energy exports is also expected to persist, keeping prices somewhat elevated compared to pre-war levels.
However, some market tightness remains, particularly in the US. The American Petroleum Institute reported a decrease of one million barrels in crude inventories at the Cushing, Oklahoma storage hub last week, potentially bringing stockpiles below the critical 20-million-barrel minimum operating level. This suggests that while global supply is improving, localized shortages could still influence prices. Overall, the market is shifting from crisis pricing to what analysts describe as "clearance pricing," indicating a focus on moving stranded barrels back into the supply chain.
