Key Takeaways:
Oil supply through the Strait of Hormuz remains at roughly a third of pre-war levels, yet Brent crude is declining toward $93 a barrel as markets price a surplus — a dynamic that has split analysts between those citing deep demand destruction and those warning of imminent physical shortages.
"The market is mispricing a surplus while underestimating how much demand has already been destroyed by the energy shock," said Jeffrey Snider, macro analyst and contributor to the Mario Nawfal discussion. Manufacturers front-loaded inventories early in the conflict, he said, creating an air pocket now that the initial rush has ended.
Throughput across the Strait of Hormuz stands at about 3.8 million barrels a day, down from a pre-war average of 20 million to 21 million, according to shipping data. Global supply plunged by 10.1 million barrels a day in March 2026 alone — one of the largest single-month disruptions on record — with OPEC+ output falling 9.4 million barrels a day. Strategic stockpiles have drawn down 430 million barrels since late February, yet Brent crude has settled near $72 to $74 a barrel in late June, roughly at or below pre-conflict levels. WTI crude traded near $69 to $71 a barrel over the same period.
The divergence between physical tightness and paper pricing is the central puzzle. Diesel and jet fuel prices have surged in Asian hubs such as Singapore, signaling real supply stress, while futures markets continue to price a surplus. Iran, which relies heavily on the strait for exports, has sold crude at discounts of $8 to $10 below Brent to maintain volumes, according to shipping reports. A June truce allowed partial reopening to about 5 million barrels a day, but normalization has been slow. Iran this week submitted a formal document to the UN International Maritime Organization asserting sovereign jurisdiction over parts of the strait within its territorial waters, citing international maritime law — a move that adds legal uncertainty to an already fragile shipping corridor.
Veteran commodities strategist Jeff Currie, now at Carlyle and Abaxx Markets, offers a bullish counterpoint focused on physical markets. He has warned that "tank bottoms" — the minimum operational inventory levels required for pipelines and refineries — have already been hit in Asia, with Europe following soon and the US potentially facing issues by July as the summer driving season peaks. Currie sees prices overshooting to the downside and expects pent-up demand to push markets higher as rebalancing occurs. He emphasizes that only increased physical supply — "molecules," in his phrasing — can resolve the core issue, not short-term policy tweaks.
The competing narratives carry different implications for the path ahead. If Snider is correct, deeper demand destruction tied to China's economic weakness and global inventory cycles will keep prices suppressed even with supply constraints. If Currie is right, the current soft prices are temporary, and a rebound is likely once physical shortages dominate pricing. The IEA projects a contraction or minimal growth in global oil demand for 2026, with sharp drops in the Middle East and Asia-Pacific, while the EIA assumes a gradual Hormuz recovery in the third quarter of 2026 onward, with prices elevated mid-year before potential moderation.
What happens next depends on whether the Strait of Hormuz normalizes faster than demand recovers — or whether the physical market's signal eventually overrides the paper market's view. Non-Middle East producers, including US shale and Brazilian offshore fields, stand to benefit disproportionately if buyers continue to seek reliable alternatives to discounted but logistically challenged Middle Eastern crude.
This article is for informational purposes only and does not constitute investment advice.
