Oil Glut Calls May Be Getting Ahead of Reality
Kuwait Wants Consortiums to Bid for $7 Billion Oil Pipeline Deal What I Cover Irina Slav has been writing about global energy markets since 2007, covering the oil and gas industry, energy security, commodities, and the… Crude oil prices are crashing on reports that flows out of the Strait of Hormuz are recovering, and analysts are back to predicting oversupply, even though Iran justsaidit will not be meeting with the U.S.
envoys to negotiate peace, and that comes after strikes on a couple of ships in Hormuz.
“The Strait is reopening faster than expected, yet the ‘twin solvers’ of high US exports and low Chinese imports remain in place,” Morgan Stanley commodity analystswrotethis week in a note, as quoted by Bloomberg.
“As attention turns to 2027, the market has come full circle – back to surplus.” Earlier, Goldman Sachs analysts made a similar point, saying that tanker traffic via the Strait of Hormuz was recovering fast, noting that “You actually get a discount to buy a barrel now versus a barrel tomorrow because of the weakness in the Asian pull on Middle Eastern grades.” There is, however, a small detail that glut-seeing analysts either ignore or consider irrelevant.
The tankers that were leaving the Strait in droves after the United States and Iran agreed on a ceasefire until August—which both sides appear to have broken—were tankers that had spent the last three months stuck there.
They were not vessels that had arrived to load crude from Middle East ports.Related: Kuwait Wants Consortiums to Bid for $7 Billion Oil Pipeline Deal One reason for this is that alternative routes that some producing countries deployed during the war are working well: Saudi Arabia is exporting from its Red Sea port of Yanbu, the UAE is using a pipeline to Fujairah, and Iraq is planning to boost flows to Turkey.
Yet speaking of Iraq, OPEC’s latest production data shows that the group’s number-two produced1.76 million barrelsof crude last month.
This was an improvement on April’s average of 1.49 million barrels daily but still much less than the last pre-war month, when the country pumped over 4 million barrels of crude daily.
Production slumps resulting from the war are why it is probably a bit too early to talk about a glut.
Iraq could certainly restore its production to pre-war levels, but it will take more than a couple of days.
The same goes for all other Gulf producers that were forced to shut in wells for lack of enough storage capacity, while tankers could not pass the Strait of Hormuz.
Insurers were not happy about the war at all.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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