With Hormuz reopened, has the oil shortage turned into a glut?
As flow resumes through the strait, an oil surplus may yet again destabilise global energy markets. The Strait of Hormuz is reopening faster than expected
As flow resumes through the strait, an oil surplus may yet again destabilise global energy markets. The Strait of Hormuz is reopening faster than expected, after the US and Iran signed a memorandum of understanding (MoU) and launched indirect talks in Qatar to discuss the flow of shipping. Global oil prices have fallen back, providing respite to consumers at the petrol pump. For a third consecutive day on Thursday, oil prices dropped about 1 percent, after Qatar said Iran and the US had made progress in discussions about the critical waterway, which handled one-fifth of global oil supply before the US and Israel first launched strikes on Iran on February 28. But as oil flows suddenly resume, there is alarm over the weakening of oil demand, mainly driven by China – the world’s largest oil importer – slashing imports. Investment banking group Morgan Stanley cut oil forecasts for the second time in two weeks, warning of the risk of a glut – a severe oversupply of crude oil in the global market that outpaces consumer demand. Analysts say such a forecast is contingent on Chinese oil imports remaining at a low level, as well as on the fragile truce between the US and Iran remaining on solid ground. How much have oil flows resumed? The June 17 MoU between the US and Iran triggered a 60-day negotiation period to reach a permanent peace deal that includes the onwards passage of many loaded tankers which had been stranded in the Strait of Hormuz since the start of the war. Under the terms of the interim deal, Iran agreed to let ships transit through the passageway for 60 days without charge, but the wording of the agreement has been controversial, with Tehran arguing that it allows it to keep control of the strait in joint accord with Oman.
Last week, the US launched strikes on Iran, citing an attack against a commercial vessel as a motivation, in an indication of the fragility of the agreement. Despite high geopolitical uncertainty, oil transit resumed faster than many had predicted, pushing down prices. Morgan Stanley was quoted by Bloomberg as saying that 35 oil and gas tankers had exited the Strait of Hormuz on Thursday, marking the first time the level had returned to within the range typical of pre-war levels. Brent futures – the global benchmark indicating the price of oil – fell $0.79 , or 1.1 percent, to $70.78 a barrel by 06:42 GMT on Thursday, while US West Texas Intermediate crude fell $0.84, or 1.2 percent, to $67.74 a barrel. Both benchmarks fell more than 1 percent in the previous session. Is there a risk of an oil glut? Mohammad Reza Farzanegan, professor of economics at the Center for Near and Middle Eastern Studies (CNMS) and the School of Business and Economics at Philipps-Universitat Marburg, Germany, sounded a note of caution over the Morgan Stanley forecast. “I would be cautious in treating the surplus forecast as settled,” he told Al Jazeera. “The market is now pricing a recovery of Hormuz flows and a temporary opening for Iranian oil exports, but both assumptions remain fragile.” Prices could rise again, depending on security in the Strait of Hormuz. But the passageway is not the only factor at play. Given the skyrocketing of oil prices in recent weeks, China has downsized its imports, tapping instead into commercial stockpiles. In parallel, while it had traditionally imported roughly half of its crude oil from the Middle East before the war, it has now resorted to importing crude from Russia, Kazakhstan, Brazil, Indonesia and Venezuela. This served as an equaliser in the global oil markets, keeping oil prices from spiking further during the conflict.
The BriefWire