The recovery in cross-strait shipping has led to lower oil prices, but this does not necessarily mean an oversupply in the oil market.
2026-07-03 13:19:59
News of the gradual resumption of shipping in the Strait of Hormuz triggered a sharp drop in crude oil prices, prompting several investment banks to predict that the market will return to oversupply, based on the core arguments of record-high US crude oil production and weakening Asian import demand.
Several energy agencies have offered differing opinions, pointing out that the market has overlooked three key constraints: stranded tankers, production capacity recovery cycles, and limited shipping insurance. The actual crude oil supply gap in the Middle East has not been fully filled, and relying solely on a short-term shipping recovery to be bearish on oil prices is clearly one-sided. Repeated geopolitical conflicts in the Middle East also continue to amplify long-term uncertainties.
Morgan Stanley commodities analysts stated in a research report that the faster-than-expected resumption of navigation in the Strait of Hormuz, coupled with high levels of US crude oil exports and weak demand from major Asian countries, suggests the market will return to a surplus by 2027. Goldman Sachs holds a similar view, noting that cooling Asian demand for Middle Eastern crude oil has created a forward discount, meaning current spot crude oil procurement costs are lower than forward rates.
The market's bearish sentiment is intensifying, primarily driven by the record high of US crude oil production exceeding 13.9 million barrels per day, which has become the main support for the oversupply argument.
The view that there is an oversupply problem has obvious flaws: the large number of oil tankers that have recently sailed out of the Strait of Hormuz are just existing ships that were stranded for three months due to the conflict, not new shipping capacity that has arrived at the port to load cargo.
During the conflict, countries utilized alternative transportation routes to mitigate the impact. Saudi Arabia relied on the Yanbu port on the Red Sea, the UAE used the Fujairah pipeline, and Iraq opened a transportation route through Turkey. However, the recovery of production capacity was slow. OPEC data shows that Iraq's daily crude oil production last month was 1.76 million barrels, higher than the 1.49 million barrels in April, but far below the pre-war level of over 4 million barrels. The restart of shut-down oil wells in the Gulf countries will take time, and it will be difficult to restore full production capacity in the short term.
Insurance institutions have tightened their underwriting policies due to geopolitical risks, and have suspended insurance coverage for vessels on the Hormuz route. The industry has a conservative risk appetite and has not yet fully opened up underwriting for oil transport in the Persian Gulf. Vessels willing to enter the region to load oil are extremely scarce.
According to energy consultancy Amrita Sen, shipping costs remain high and the shipping environment in the Persian Gulf has not returned to pre-war conditions since the US and Israel struck Iran on February 28.
ING analysts Warren Patterson and Ewa Manthey added that only 11 tankers passed through the Strait of Hormuz each day, far below the previous peak of 24. The number of inbound tankers has only slightly recovered. If the recovery of shipping capacity is not as expected, oil prices still have an upward basis.
Even if US crude oil production hits a record high, it will be difficult to offset supply losses from the Middle East on its own. US crude oil is mainly light, sweet, and low-sulfur, while global refineries still need to blend and process medium and heavy crude oil, resulting in a mismatch in product mix. Meanwhile, the situation in the Middle East remains volatile, with rumors of peace talks circulating intermittently, and ship attacks erupting at other times. Iran has also explicitly refused to engage in peace negotiations with the US, making the outlook for crude oil supply highly uncertain.
Judging oversupply solely based on short-term shipping data, while ignoring multiple constraints such as capacity recovery, shipping, and oil product structure, is too hasty.
In summary, the short-term recovery in cross-strait shipping has led to a correction in oil prices, but this does not indicate that the oil market has entered a period of oversupply . The slow recovery of oil-producing capacity in the Gulf, coupled with rigid constraints on shipping insurance and capacity, structural weaknesses in US crude oil categories, and repeated geopolitical disturbances in the Middle East, mean that medium- to long-term oil supply pressures remain.
The market should not be overly bearish on oil prices based solely on short-term shipping data; it needs to continuously monitor the scale of tanker inbound traffic and the progress of crude oil production recovery in various countries.
Several energy agencies have offered differing opinions, pointing out that the market has overlooked three key constraints: stranded tankers, production capacity recovery cycles, and limited shipping insurance. The actual crude oil supply gap in the Middle East has not been fully filled, and relying solely on a short-term shipping recovery to be bearish on oil prices is clearly one-sided. Repeated geopolitical conflicts in the Middle East also continue to amplify long-term uncertainties.
Several investment banks are bearish on oil prices, predicting a return to a supply-stable market.
Morgan Stanley commodities analysts stated in a research report that the faster-than-expected resumption of navigation in the Strait of Hormuz, coupled with high levels of US crude oil exports and weak demand from major Asian countries, suggests the market will return to a surplus by 2027. Goldman Sachs holds a similar view, noting that cooling Asian demand for Middle Eastern crude oil has created a forward discount, meaning current spot crude oil procurement costs are lower than forward rates.
The market's bearish sentiment is intensifying, primarily driven by the record high of US crude oil production exceeding 13.9 million barrels per day, which has become the main support for the oversupply argument.
The shipping recovery appears to be a false one; most ships sailing out of the strait are old, stranded vessels.
The view that there is an oversupply problem has obvious flaws: the large number of oil tankers that have recently sailed out of the Strait of Hormuz are just existing ships that were stranded for three months due to the conflict, not new shipping capacity that has arrived at the port to load cargo.
During the conflict, countries utilized alternative transportation routes to mitigate the impact. Saudi Arabia relied on the Yanbu port on the Red Sea, the UAE used the Fujairah pipeline, and Iraq opened a transportation route through Turkey. However, the recovery of production capacity was slow. OPEC data shows that Iraq's daily crude oil production last month was 1.76 million barrels, higher than the 1.49 million barrels in April, but far below the pre-war level of over 4 million barrels. The restart of shut-down oil wells in the Gulf countries will take time, and it will be difficult to restore full production capacity in the short term.
Tighter shipping insurance and insufficient shipping capacity continue to constrain crude oil exports.
Insurance institutions have tightened their underwriting policies due to geopolitical risks, and have suspended insurance coverage for vessels on the Hormuz route. The industry has a conservative risk appetite and has not yet fully opened up underwriting for oil transport in the Persian Gulf. Vessels willing to enter the region to load oil are extremely scarce.
According to energy consultancy Amrita Sen, shipping costs remain high and the shipping environment in the Persian Gulf has not returned to pre-war conditions since the US and Israel struck Iran on February 28.
ING analysts Warren Patterson and Ewa Manthey added that only 11 tankers passed through the Strait of Hormuz each day, far below the previous peak of 24. The number of inbound tankers has only slightly recovered. If the recovery of shipping capacity is not as expected, oil prices still have an upward basis.
US production capacity cannot make up for the Middle East deficit, and geopolitical disturbances continue to increase uncertainty.
Even if US crude oil production hits a record high, it will be difficult to offset supply losses from the Middle East on its own. US crude oil is mainly light, sweet, and low-sulfur, while global refineries still need to blend and process medium and heavy crude oil, resulting in a mismatch in product mix. Meanwhile, the situation in the Middle East remains volatile, with rumors of peace talks circulating intermittently, and ship attacks erupting at other times. Iran has also explicitly refused to engage in peace negotiations with the US, making the outlook for crude oil supply highly uncertain.
Judging oversupply solely based on short-term shipping data, while ignoring multiple constraints such as capacity recovery, shipping, and oil product structure, is too hasty.
Summarize
In summary, the short-term recovery in cross-strait shipping has led to a correction in oil prices, but this does not indicate that the oil market has entered a period of oversupply . The slow recovery of oil-producing capacity in the Gulf, coupled with rigid constraints on shipping insurance and capacity, structural weaknesses in US crude oil categories, and repeated geopolitical disturbances in the Middle East, mean that medium- to long-term oil supply pressures remain.
The market should not be overly bearish on oil prices based solely on short-term shipping data; it needs to continuously monitor the scale of tanker inbound traffic and the progress of crude oil production recovery in various countries.
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