As the disruption in the Strait of Hormuz surpasses 100 days, an unusual picture has emerged in global oil transportation. Shipments of crude oil and liquefied natural gas through the strait, considered one of the most critical chokepoints for world trade, have declined sharply.
World Trade Organization data points to a 95 percent drop in crude oil shipments from Gulf ports and a 99 percent decline in LNG-carrying vessels. The International Energy Agency describes the situation as the largest supply disruption in the history of the global oil market.
Despite this, the price of Brent crude remained at $87.55 per barrel. This outlook shows the market has not reacted as severely as expected while the conflict and disruption continue.
Why haven't prices risen as much as expected?
One of the most significant factors keeping energy prices limited has been stockpiles. China is reported to have approximately 1.3 billion barrels of oil in storage and is using this stockpile by drawing it down at a rate of about 1 million barrels per day.
Analysts report that China's purchases have also declined compared to previous months. Daily demand is said to have remained around 7 million barrels during the May, June, and July period, after having risen to 12.5 million barrels in December.
The United States, Brazil, and Canada are assessed to have stepped in, closing part of the gap. Experts offering opinions agree that the oil market has responded more robustly to this disruption than previously thought.
FGE NexantECA Middle East Director Iman Nasseri says a portion of demand in the market has been trimmed and a significant amount of stock has also entered the market. According to Nasseri, these buffers may not continue at the same pace for long; the balance is likely to shift by July.
How large is the disruption?
Clarifying the scale of the disruption is difficult because shipments referred to within the industry as "dark trade" create an area that is hard to track. Some vessels turn off their AIS transponders, sail close to the Omani coast at night, and occasionally proceed with a naval escort.
Nevertheless, the departure volumes of some crude grades can be partially tracked. For instance, the UAE's Murban crude can be shipped from Fujairah, outside the strait. However, no such alternative exists for some grades like Upper Zakum.
An oil market analyst reports that Upper Zakum crude has been seen in other markets, but the scale of this is unclear. Matt Stanley, meanwhile, says approximately 100 million barrels of oil may have passed through the Strait of Hormuz since May 1.
Stanley recalls that before the conflict, about 20 million barrels of oil passed through the strait daily, emphasizing that this volume represents just a few days' worth of shipments under normal conditions. In his view, while 100 million barrels is a significant figure, it remains a limited volume compared to previous traffic.
What happens when stockpiles run out?
According to experts, the market's resilience has its limits. Some stockpiles are reportedly approaching operationally critical levels, creating a need for new shipments and replenishment.
Stanley says the US may also have to prioritize its own domestic demand as the year-end approaches, and the supply balance could become even more sensitive due to the heating season. For this reason, the market is said to be hoping the situation in the strait becomes clear by mid-August.
According to an analysis by S&P Global CERA, restarting fields that have been shut in for two months can take between 10 weeks and 7 months. International Energy Agency Chief Fatih Birol said more than 80 energy facilities have been damaged and recovery could take up to two years.
The United Arab Emirates' national oil company predicts that full flow through Hormuz may not return to normal until 2027. Stanley also notes that the core infrastructure, from vessel services to inspection processes, may have ground to a halt as business volume has dropped.
Another risk for the market is a scenario of a swift and clean resolution. According to Stanley, if oil is sourced from elsewhere and the strait reopens before prices hit the $200 level, there could then be a risk of prices falling back to $50.
Experts assess that producers like Iraq, which have suffered prolonged revenue losses, could turn to aggressive exports as soon as the gates open, and supply management will once again take center stage on the agenda in the second half of the year.
