Oil prices showed a mixed reaction, with a slight rebound on Monday after a tanker was reportedly struck in the Strait of Hormuz, highlighting ongoing geopolitical risks in the region. This came even as broader market trends pointed towards falling prices, with Brent crude futures settling at $71.99 a barrel and U.S. West Texas Intermediate (WTI) crude futures at $68.55 a barrel. Both benchmarks were largely unchanged last week and returned to levels last seen in late February, prior to the four-month Iran war, which the International Energy Agency described as the biggest energy disruption in history.
The downturn in oil prices has been influenced by several factors. Saudi Arabia significantly cut its official selling price for Arab Light crude to Asia in August by $1.50 a barrel below the Oman/Dubai average, the largest monthly reduction since 2003. The United Arab Emirates also boosted its crude output to nearly 3.8 million barrels per day in June after leaving OPEC to avoid production caps. Additionally, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed to increase output targets by 188,000 barrels per day starting in August, following similar increases in June and July. This increased supply, combined with previously stranded tankers exiting the Gulf, contributed to a rise in "oil on water."
Despite the immediate geopolitical tremor, analysts like Tamas Varga of PVM noted that producers are "selling into a falling market," offering little hope for an imminent price recovery but suggesting that lower prices will stimulate demand in the future. The total OPEC+ production had dropped to 33.13 million barrels per day in May from 42.77 million barrels per day in February. The world has largely absorbed the historic supply loss of over a billion barrels since the Iran war began, by drawing down global oil inventories at a record pace, including an accelerated release from the U.S. Strategic Petroleum Reserve, which fell by 6.2 million barrels to 319.5 million barrels, its lowest level since April 1983. This massive drawdown means global inventories are now significantly depleted, and rebuilding them will be a substantial task.
While traffic through the Strait of Hormuz has shown signs of recovery since a memorandum of understanding was signed between the U.S. and Iran on June 17, it remains below pre-conflict levels. Before the war, there were roughly 130 daily crossings, which dropped significantly during the conflict. The easing of the Strait of Hormuz blockade has been a key factor driving down prices. Shipping companies like Maersk and Hapag-Lloyd are also resuming sailings through the Suez Canal, shortening transit times and further easing supply concerns, despite the lingering risks highlighted by Monday's tanker incident. The European Central Bank had previously estimated 2027-2028 oil prices at $63 to $64 per barrel, which has now risen to an average of $65 to $75 in a June report.
