Oil prices may have returned to levels seen before the conflict between the United States and Iran, but the global crude market is still dealing with the fallout of months of disruption.
Brent crude has fallen back to around $73 a barrel after the interim agreement between Washington and Tehran eased fears of a prolonged conflict and allowed shipping through the Strait of Hormuz to resume. While the drop in prices suggests stability is returning, the oil market remains under pressure from a rush of delayed exports, supply chain bottlenecks and uncertainty over future shipments.
The reopening of one of the world’s most important oil routes has triggered a wave of activity as tankers that were stranded inside the Gulf during the conflict begin leaving the region. This has released millions of barrels of crude into the market within a short period, increasing available supply.
Supply rush meets weak demand
The challenge is not just getting oil out of the Gulf. Producers also need empty tankers to return so that crude stored onshore can be loaded and production at oilfields and refineries can fully restart. Countries such as Kuwait, Iraq, Bahrain and Qatar, which rely heavily on the Strait of Hormuz for exports, are particularly dependent on the return of shipping traffic.
Energy consultancy Rystad Energy expects oil production across the Gulf to gradually recover and return to pre conflict levels by December. Iran is also expected to increase output after the United States suspended most sanctions on its oil exports under the interim agreement. Rystad estimates Iranian production could rise to 3.3 million barrels per day by the end of the year if the sanctions relief remains in place.
The growing supply, however, is arriving at a time when demand remains soft. Many refineries in Asia and Europe have already secured crude supplies for July and August, leaving little immediate need for additional cargoes. As a result, some tankers may remain at sea for weeks, effectively serving as floating storage until buyers emerge.
This imbalance has already started to influence oil trading. Brent crude briefly moved into a market structure known as contango, where future deliveries are priced higher than near term contracts. Such a pattern often reflects expectations of abundant short term supply.
Uncertainty still hangs over the market
Despite improving conditions, concerns about the Strait of Hormuz have not disappeared. Under the temporary US-Iran agreement, ships can pass through the waterway without disruption for 60 days while talks continue on a longer term arrangement.
However, recent incidents involving Iranian forces and a cargo vessel have highlighted that security risks remain. Although shipping resumed quickly, many shipowners are still cautious about returning vessels to the region.
Industry data also suggests traffic has not fully recovered. While tankers are continuing to leave the Gulf, the number entering remains well below normal levels, slowing efforts to restore the balance between exports and production.
Analysts also warn that the longer term outlook could become more difficult. The International Energy Agency expects global oil supply to rebound strongly over the next two years, while demand is forecast to grow at a much slower pace. If that happens, the market could face a sizeable surplus, adding further pressure on prices.
For now, lower oil prices may offer some relief, but analysts believe the path back to a balanced market is likely to remain uneven in the months ahead.
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