Brent flips to contango as Hormuz reopening floods oil markets

Hormuz Reopening Floods Oil Markets as Physical Crude Discounts Hit Multi-Year Lows

The reopening of the Strait of Hormuz is sending shockwaves through global oil markets far faster than traders anticipated, with physical crude prices collapsing worldwide and key market structures flipping to signal oversupply for the first time since the U.S.-Iran conflict began in late February.

Physical Markets in Freefall

Physical crude cargoes are being sold at steep discounts globally as barrels stream out of the Persian Gulf. According to Reuters, Angolan Nemba crude for August loading traded at nearly $8 below Dated Brent in a sale from Eni to Glencore — approaching levels not seen in over a decade. Cash Dubai crude traded at a discount of 27 cents per barrel on Tuesday, a dramatic reversal from premiums exceeding $60 in March at the height of the crisis.reuters

Bloomberg reported Tuesday that Brent’s prompt time-spread flipped into contango — where the nearest contract trades below the next month — for the first time since February, a structure that typically signals anticipated excess supply. The shift marks a stark turnaround from the severe backwardation that prevailed throughout the conflict.bloomberg

A Wave of Stranded Barrels

The supply surge traces directly to the June 20 formal signing of the U.S.-Iran memorandum of understanding in Geneva, which reopened the strait after nearly four months of disruption. According to Signal Group data cited by Business Times, approximately 31 supertankers carrying about 62 million barrels of crude were trapped inside the Persian Gulf and have begun sailing out. Kpler analyst Muyu Xu estimated the reopening could unleash around 93 million barrels of non-Iranian oil from the Gulf.reuters

Chinese demand, once a reliable backstop for global crude markets, is compounding the oversupply. China’s seaborne crude imports have remained depressed near May’s low of around 7 million barrels per day, according to Kpler, with refiners drawing down inventories rather than purchasing new cargoes. Chinese refinery throughput fell below 13 million barrels per day in recent months, and the country’s refiners have little urgency to buy with tanks full from pre-war stockpiling.nytimes

Analysts Warn of Volatile Road Ahead

Goldman Sachs co-head of global commodities research Daan Struyven said the bank expects Persian Gulf exports to reach pre-war levels by the end of July. The bank cut its fourth-quarter Brent forecast to $80 per barrel and projects an average of $75 for 2027.rigzone

Yet Struyven cautioned that the market remains vulnerable. “Inventories are quite low,” he said, noting the oil market is still in a roughly 5 percent deficit relative to normal levels. The U.S. Strategic Petroleum Reserve hit its lowest level since 1983, and the International Energy Agency noted that North Sea Dated prices collapsed by more than $40 per barrel between April and mid-June. Analysts at Kpler warned that “the potentially prolonged absence of Chinese procurement demand risk tipping the market into a slight oversupply in Q3,” but that any disruption to the fragile peace deal could rapidly reverse the selloff.goldmansachs