Hormuz Reopening Rapidly Floods Oil Markets with Supply, Driving Prices Below $75

Global oil markets are reeling after the Strait of Hormuz reopened following a U.S.-Iran agreement, unleashing a flood of crude that has sent prices plummeting below $75 a barrel—a level not seen since the start of the Iran war. The sudden surge in supply, combined with tepid demand from China, has triggered a sharp oversupply across Europe and Asia, with Middle Eastern grades trading at steep discounts. Angolan crude, typically gobbled up by Chinese refiners, is now selling at nearly $10 below the global Dated Brent benchmark, the widest gap in over a decade. Traders report that some Chinese refiners are even flipping cargoes for sale, a stark reversal from normal trade flows. The reopening of the Hormuz Strait, a critical chokepoint for global oil transit, has accelerated the release of trapped crude, with Iran alone shipping 30 million barrels to Asia in the days before a 60-day U.S. license permitted international sales. Meanwhile, the UAE has aggressively ramped up exports, selling around 60 million barrels in recent tenders, while supertankers carrying 12 million barrels from the UAE and Oman are en route to Europe. The market’s shift from scarcity to glut has been breathtaking: Dated Brent, the world’s most important physical oil benchmark, topped $140 in early April amid panic buying but has since halved in value. Goldman Sachs’ Daan Struyven noted the rapid reopening is working ‘too well,’ creating a bearish contango structure where barrels today trade at a discount to those delivered tomorrow due to weak Asian demand. Despite the immediate oversupply, the market remains vulnerable to shocks. U.S. crude inventories, including strategic reserves, are at their lowest since 1984, while Cushing’s stockpiles are near operational minimums. This has pushed U.S. prices higher relative to the rest of the world, curbing export demand. The International Energy Agency (IEA) still forecasts a significant surplus in 2027, but the current glut has come at the cost of depleted inventories that will need replenishing, potentially absorbing some excess supply. The reopening of Hormuz has also disrupted traditional trade routes, with millions of barrels now heading to Europe instead of Asia. Nigeria’s Dangote refinery, for instance, has purchased UAE crude for the first time, highlighting how the glut is forcing new market dynamics. While the physical market weakens, derivatives trading remains dominated by trading houses and physical oil companies, signaling ongoing volatility. The rapid shift underscores how quickly geopolitical resolutions can upend market fundamentals, leaving traders scrambling to adapt to a landscape where abundance, not scarcity, dictates prices.