Why the oil crisis isn't really over though Brent is down

Brent crude has seen one of its fastest reversals in years — surging on fears of a prolonged Strait of Hormuz shutdown before retreating after the US-Iran agreement. The focus now shifts from panic to recovery, as inventories, shipping & Asian demand determine what comes next, writes Saurav Anand

- Saurav Anand

THE RECENT RALLY was driven by fear, not an immediate shortage of oil. The Strait of Hormuz carries nearly 20 million barrels of crude oil and petroleum products a day, equivalent to almost 20% of global oil consumption, besides around 20% of global LNG trade.

The US-Iran conflict impacted the passage of tankers through this waterway. The disruption affected over 11 million barrels per day (bpd) of crude production and another 3 million bpd of refining capacity linked to petroleum exports. As the conflict continued, traders feared the world's biggest energy chokepoint could remain shut for months. At one stage, analysts warned Brent could climb above $150 a barrel, triggering another global inflation shock.

The June 17 US-Iran Memorandum of Understanding (MoU) changed that outlook. Markets immediately priced in a gradual reopening of Hormuz and the return of Gulf supplies. As the fear of prolonged disruption faded, so did the geopolitical premium built into oil prices. Brent corrected sharply even before physical supplies had fully recovered.

Has the oil price bubble really burst?