Middle East oil producers are eager to sell crude oil accumulated during the recent Persian Gulf conflict, according to TotalEnergies SE Chief Executive Patrick Pouyanné. This push has contributed to a swift decline in crude oil prices, with Brent trading around $72 per barrel on Friday, a significant drop from its peak during the war and a 30% decline in the second quarter. Despite the falling crude prices, Pouyanné noted that gasoline and diesel inventories remain tight due to ongoing shipping concerns, keeping their prices at levels equivalent to crude oil at $95 to $100 a barrel. He anticipates it will take three to four months for the market to rebalance.
Analysts are increasingly warning of an impending oil glut as Strait of Hormuz flows normalize faster than expected, and key producers like Saudi Arabia and the UAE ramp up exports. Saudi Arabia's crude exports have reached nearly 90% of pre-war levels, and the UAE has fully restored its oil exports. This influx of supply coincides with reduced demand from China and existing wartime supply workarounds, such as releases from emergency reserves. JPMorgan Chase & Co. head of commodities research, Natasha Kaneva, stated that a "wave of oil is about to enter the market" at a time when demand doesn't necessarily need it.
However, some analysts caution against declaring a full-blown glut. Mohammad Reza Farzanegan, a professor at Philipps-Universitat Marburg, highlights that the market is pricing in a recovery of Hormuz flows and a temporary opening for Iranian oil exports, but these assumptions remain fragile. He describes the outlook as a "temporary surplus risk under high political uncertainty" rather than a stable oil glut. The full resumption of oil supplies through the Strait of Hormuz, reaching pre-conflict levels of 20 million barrels a day, and the stability of the US-Iran agreement are crucial factors. Shipping costs also remain incredibly high, and limited insurance coverage continues to constrain supply.
Despite the rapid price decline, with Brent futures slipping to near $70 a barrel and US West Texas Intermediate (WTI) dipping to near $67 a barrel, the persistence of high gasoline and diesel costs suggests a disconnect between crude and refined product markets. While there's a strong push to sell crude, the logistical challenges and high costs associated with shipping refined products are keeping their prices elevated. The rapid resumption of Saudi Arabian exports, including ad-hoc sales to Asia, further solidifies the view of an oversupplied crude market in the short term.
