Oil prices have continued to decline, falling below pre-war levels, due to a significant increase in crude exports from the Persian Gulf. Saudi Arabia, in particular, has ramped up its shipments, reaching almost 90% of its previous export levels by restarting operations at its Ras Tanura terminal. Four supertankers, each carrying about 2 million barrels, have exited the Strait of Hormuz, with Saudi Aramco making unusual ad-hoc sales to Asian customers to expedite the movement of crude.
The United Arab Emirates has also contributed to this surge, restoring its oil exports to pre-conflict levels of more than 3.9 million barrels per day last month. A US official estimates that total oil supply through the crucial Strait of Hormuz chokepoint has now reached over 10 million barrels per day. This resurgence in supply comes after an interim peace agreement between Washington and Tehran allowed for the reopening of the waterway, alleviating fears of an oil-led inflationary spike.
This influx of crude is creating a supply surplus in the market. Brent futures have slipped to near $70 a barrel, their lowest since before the Iran war began on February 28, while US benchmark West Texas Intermediate dipped to near $67 a barrel. The market is currently experiencing a bearish contango price structure, with closest contracts trading at discounts, signaling short-term oversupply. JPMorgan Chase & Co. commodities research head Natasha Kaneva noted the paradox of a wave of oil entering a market that, for now, does not need it.
Despite ongoing tensions, traffic through Hormuz has picked up, with ships increasingly moving in convoys, often through a US-administered corridor in Omani waters. Analysts had warned that Iran's previous leverage in choking off the strait during the conflict had encouraged the US to pursue a ceasefire and negotiations. With the significant increase in oil flows, this leverage is now diminished, pressing Iran to establish a long-term agreement guaranteeing open commercial transit and potentially pay transit fees, though Iran insists on maintaining some control over maritime traffic.
