Oil Shifts from Scarcity to Surplus Risk as Hormuz Reopens — NRG-IA

The oil market is undergoing a regime shift: the fear of scarcity is beginning to be replaced by the risk of an oversupply. After months in which the Strait of Hormuz was the critical flashpoint of global energy security, the prospect of resuming flows brings back an opposing concern: too many barrels returning to the market in a relatively short timeframe. The Financial Times frames this shift with a stark thesis: the supply crisis is drawing to a close, and the next challenge could be an oil glut. The publication points to a potential surplus of 3–4 million barrels per day (bpd) by next year, driven by the resumption of Gulf flows, additional volumes from Iran and the UAE, and new projects in Brazil, the US, and Guyana. The market signal is already visible in prices. Reuters reported on June 17 that Brent was trading at around $78.80 per barrel and WTI at $75.80 per barrel, following two consecutive sessions of roughly 5% declines, buoyed by hopes that a US-Iran agreement would allow flows to resume through Hormuz. From supply shock to market repositioning The blockade in Hormuz caused one of the most severe energy disruptions in recent history. In its April report, the IEA showed that global oil supply fell by 10.1 million bpd in March to 97 million bpd, amid attacks on Middle Eastern energy infrastructure and transit restrictions for tankers through the Strait of Hormuz. During the same period, observed global inventories fell by 85 million barrels, while floating storage of crude and petroleum products in the Middle East rose by 100 million barrels. These figures illustrate the mechanics of the crisis: oil did not vanish entirely from the system, but a significant portion remained trapped, delayed, or difficult to deliver to refineries. This distinction matters now. If flows resume, the market could simultaneously receive delayed oil, restarted production, and alternative volumes that gained market share during the crisis. This is where the risk of a surplus emerges. Hormuz will not turn back on like an instant tap Reopening the Strait of Hormuz does not equate to an immediate return to normal. Reuters quotes the head of Mitsui O.S.K. Lines, one of Japan's largest shipping operators, who estimates that transit through the strait could take several weeks, or possibly a month, before shipowners receive sufficient safety guarantees. This caution limits the speed of the recovery. Tankers, insurers, governments, and port operators must confirm that the route can be used under acceptable conditions. Even if a political agreement reduces the risk premium in prices, physical logistics remain slower than the stock market's reaction. Reuters notes that the agreement would allow the United States to lift its blockade on Iranian ports, while Iran would permit oil traffic through the strait. However, the document was not public at the time of reporting, and the industry warns that a full return to pre-conflict production and refining levels could take weeks, months, or even longer. Stranded oil could become additional supply During the blockade, the market functioned through imperfect workarounds. Reuters documented an extensive network of ship-to-ship transfers in the Gulf of Oman, near Fujairah and Sohar, involving at least 116 vessels in oil-moving operations. Reuters estimates that up to 90 million barrels of crude and petroleum products have been transferred through this network since early May. This adaptation mitigated the actual deficit but did not replace normal flows. The transfers were risky, inefficient, and far smaller than the average of approximately 20 million bpd that passed through the strait before the conflict. As normal shipping gradually returns, a portion of these delayed volumes could enter the market more smoothly, just as demand is showing signs of weakness. This is where the central tension lies: the oil that was missing from refineries could, with a delay, become oil competing for buyers. OPEC+ enters a difficult position The risk of a surplus does not stem solely from the reopening of Hormuz; it also comes from producer behavior. Reuters argues that reopening the strait could put OPEC in a difficult position, as blockaded nations are keen to recoup revenues and market share. At the same time, producers that gained ground during the crisis, including those outside the Gulf, will not easily yield their newly won positions. OPEC+'s signaling is already pointing toward more supply. The group is on track to unwind, at least on paper, the 1.65 million bpd cut agreed in 2023 by September. Reuters quotes Rystad Energy outlining a scenario where the return of OPEC barrels, alongside high production from the US, Brazil, and Venezuela, could push the market into a surplus of approximately 5 million bpd in the months following the full reopening of Hormuz. This remains a scenario, not a foregone conclusion. However, it demonstrates how quickly the balance can tip: the very route that fueled fears…