The reopening of the Strait of Hormuz following a U.S.-Iran agreement has quickly led to a flood of oil into global markets, primarily impacting Europe and Asia with signs of oversupply. This influx includes a backlog of approximately 62 million barrels of crude, carried by around 31 supertankers, that were trapped inside the Persian Gulf and are now being unleashed on Asia. Even before this deal, factors like strategic inventory releases and clandestine tanker shipments had contributed to a minor oversupply.
The resulting market weakness is evident in the steep price declines. Angolan crude, typically favored by China, is now selling at multi-year lows, sometimes $10 a barrel below the global Dated Brent benchmark. The Dated Brent itself has nearly halved in value from its early April peak of $140, dropping below $75 per barrel for the first time since the conflict began. Middle Eastern crude benchmarks like Dubai and Murban have also shifted into a bearish contango, signaling oversupply.
Asian refiners are particularly well-supplied until at least August, exacerbating the glut. Some Chinese refiners, in a rare reversal of typical flows, are even offering oil cargoes for sale. The United Arab Emirates has actively contributed to the oversupply by selling about 60 million barrels of crude in recent tenders. This situation has led to millions of barrels, ordinarily bound for Asia, being redirected to Europe, with at least six supertankers carrying 12 million barrels from the UAE and Oman expected in Europe next month.
While the current oversupply aligns with earlier forecasts of a significant surplus in 2027 by the International Energy Agency, the market remains vulnerable to disruptions due to low global inventories, particularly in the U.S. U.S. crude inventories, including strategic reserves, are at their lowest since 1984, and stockpiles at Cushing are near operational minimums. This disparity has resulted in stronger U.S. prices compared to the rest of the world, curbing export demand from the U.S.
