Key development
Market participants and ship-tracking firms warned that a potential reopening of the Strait of Hormuz on Friday, triggered by a U.S.-Iran interim deal, would free up millions of barrels of crude oil currently stranded in the Middle East Gulf and likely put downward pressure on prices.
Supply glut risks as tankers move
Analysts and executives said a wave of supply is set to reach global markets after Gulf producers already increased exports through ship-to-ship transfers off the United Arab Emirates and Oman this month, a practice that pushed spot differentials for Middle East crude into discounts earlier in the week.
Kpler analyst Muyu Xu estimated in a June 17 note that reopening the Strait of Hormuz could release some 93 million barrels of stranded non-Iranian crude held in the Persian Gulf. Kpler also said the lifting of U.S. restrictions on Iranian crude could free about 72 million barrels that were stranded on tankers west of Chabahar, with that total potentially rising if Washington provides broader sanctions relief.
Ship-tracking data from Vortexa showed 54 supertankers carrying roughly 87 million barrels of crude were stuck inside the Gulf as of Thursday. Separately, Iran’s tanker fleet has begun to prepare for higher exports, with three Iranian tankers exiting the Strait this week — a waterway that carried about a fifth of the world’s oil and liquefied natural gas shipments before the U.S. and Israel attacked Iran on February 28.
Commercial response and buyer commitments
Even as supply prospects expand, many Asian refiners have already committed to cargoes scheduled to arrive between June and August, and several Chinese refineries are slated to shut for maintenance, reducing immediate demand for incremental crude.
Consultancy Energy Aspects tracked more than 1.8 million barrels per day of Chinese refining capacity planned to be offline for turnarounds in July, including nearly 1.2 million bpd at private firms. The consultancy said China’s throughput, which was at a near four-year low in May, is expected to fall further to about 12.4 million bpd this month before bouncing back above 13 million bpd in July as state-owned refiners raise runs.
Sources in China said many refiners paused spot buying while waiting for confirmation of the strait’s reopening and for more detail on the interim agreement, a dynamic that has limited immediate absorption of newly available crude.
Pricing, refinery margins and product demand
Although softer crude prices have improved refinery economics and narrowed losses for some operators, refinery margins are expected to remain weak in the second half of the year, according to industry contacts. One South Korean official said refiners are bracing for poor profitability, characterizing the market as a contest over economics rather than a scramble for specific grades.
China’s fuel demand is also expected to stay subdued amid the nation’s rapid uptake of electric vehicles, which reduces growth in oil consumption. Kpler’s Xu noted that a large-scale jump in crude buying by Chinese refiners looks unlikely unless Beijing relaxes restrictions on product exports or embarks on another round of strategic petroleum reserve replenishment.
Some Middle Eastern suppliers have approached independent refiners in eastern Shandong province with offers, but those prices were higher than sanctioned barrels from Iran and Russia, according to two sources. In this environment, a Singapore-based trader said sellers will likely need to cut prices further to secure buyers, pointing to unsold cargoes held by some producers, including TotalEnergies.
Shifts in regional trade flows
Refiners across Asia are preparing for a renewed flow of Middle Eastern crude that could reduce import demand for barrels from the Americas. Taiwan’s state refiner CPC said it could pivot to heavier, higher-sulphur grades to produce more bitumen and sulphur to meet home market needs if the strait reopens.
Some Middle Eastern producers have urged Indian refiners to accept volumes committed under term contracts, which would cut their reliance on spot tenders, sources at three Indian refineries said. Kpler anticipates a gradual recovery in India’s demand for Gulf oil that could support an additional 400,000 bpd to 600,000 bpd of Middle Eastern imports through August as refiners rebalance crude slates.
An Asian trader warned that greater volumes of Middle Eastern crude would deepen contango across regional benchmarks, a structure where prompt prices are below later months and that typically signals ample near-term supply.
Supporting that shift, Dubai’s benchmark premium to swaps returned to positive territory on Wednesday after sliding into a 46-cent discount on Tuesday, reflecting volatile short-term differentials as markets digest changing supply dynamics.
Political backdrop
U.S. President Donald Trump and Iranian President Masoud Pezeshkian digitally signed a 14-point agreement to end the war on Wednesday, U.S. and Iranian officials said. Iran’s foreign ministry indicated the agreement was already in force. The interim deal and any follow-on sanctions relief are central to whether additional Iranian volumes will be able to move freely to market.
Bottom line
The reopening of the Strait of Hormuz has the potential to release substantial crude volumes now held in the Gulf, adding downward pressure to regional crude values and prompting refiners to adjust buying patterns and crude slates. How quickly markets absorb that supply will depend on scheduled refinery turnarounds, buyer commitments already in place, and policy decisions on product exports and reserve buying.