Key facts
- Approximately 62 million barrels of crude oil are poised to be released from the Strait of Hormuz.
- A U.S.-Iran interim deal has been signed, leading to the reopening of the Strait of Hormuz.
- Asian refiners are currently well-supplied and have reduced processing rates.
- The influx of oil is causing West Asian crude benchmarks to trade in a bearish contango pattern.
- Goldman Sachs expects Persian Gulf exports to return to pre-war levels by the end of July.
A significant wave of approximately 62 million barrels of crude oil is expected to be released from the Strait of Hormuz and head towards Asia, following a U.S.-Iran interim deal that will reopen the vital waterway. This impending influx of oil comes at a time when Asian refiners are already well-supplied for the current and next month, having scrambled to replace West Asian flows and reduced processing rates due to high prices curbing demand.
Traders familiar with the matter noted that this situation is a stark reversal from the early stages of the conflict, when prices were spiking and the market warned of dramatic shortages. Refiners had secured purchases from alternative sources like the U.S., while China largely stayed out of the market and Japan tapped local storage. Major Persian Gulf sellers such as Abu Dhabi National Oil Co. and Kuwait Petroleum Corp. have been marketing their supply, and oil production in Iraq has also increased.
Goldman Sachs Group Inc. analysts, including Daan Struyven, anticipate that Persian Gulf exports will normalize to pre-war levels by the end of July. The market has already reacted to the imminent crude flows, with the forward curve for benchmark West Asian crudes like Dubai and Murban flipping into a bearish contango pattern for the first time since the war began. Oman crude is currently priced at a discount to its underlying Dubai benchmark, a reversal of its usual premiums. Additionally, at least one South Korean refiner has been offering a larger-than-usual amount of distillate fuel for sale.