The Middle East crude oil market may face greater downward pressure if the Hormuz Strait reopens under a temporary agreement between the US and Iran. Energy industry experts believe this move will release tens of millions of barrels of oil trapped in the Persian Gulf region.
According to analyst Muyu Xu of Kpler, resuming traffic through the Strait of Hormuz could bring about 93 million barrels of non-Iranian oil from the Persian Gulf to the international market. Some traders estimate that about 50 million barrels of oil will be released immediately because part of the goods has been transported before.
Kpler also said that lifting US restrictions on Iranian crude oil could help about 72 million barrels of oil anchored on oil tankers west of Chabahar to be brought to market. This volume could increase if Washington further eases sanctions.
Previously, Gulf producers had increased exports through transshipment between ships off the coast of the United Arab Emirates and Oman. Increased supply has caused the spot price difference of Middle Eastern oil to shift to a discounted state.
US and Iranian officials said that President Donald Trump and President Masoud Pezeshkian signed an electronic agreement of 14 points to end the conflict. The Iranian Foreign Ministry affirmed that the agreement has taken effect.
While supply is forecast to increase sharply, short-term demand in Asia has not shown signs of breakthrough. Many oil refineries in the region have completed ordering oil shipments from June to August. Some oil refineries in China are also preparing to enter the maintenance phase.
Energy Aspects said that more than 1.8 million barrels of oil refining capacity per day in China will be temporarily suspended in July. Fuel demand in this country continues to be affected by the transition to electric vehicles.
Some Chinese refineries have temporarily stopped buying spot oil to wait for the Hormuz Strait to open and monitor further details of the US-Iran agreement. According to traders, crude oil suppliers may have to continue to reduce prices to attract customers.
However, many oil refineries in Asia are preparing for the possibility of increased supply from the Middle East. Kpler forecasts that India's Gulf oil demand may increase by another 400,000 to 600,000 barrels per day by August as businesses adjust import structures.
Traders believe that abundant supply from the Middle East may increase the oversupply situation in the regional oil market in the near future.
