Brent crude eases to $75 as supply growth offsets Hormuz risk

Oil markets are pricing in a diminished risk premium from the Strait of Hormuz closure as expanding Western Hemisphere supply and alternative export routes offset Gulf disruptions, pushing Brent crude to around $75 a barrel.

"Oil markets are largely accepting US assurances that the Strait of Hormuz remains open," Mike McGlone, senior commodities strategist at Bloomberg Intelligence, said. "Expanding Western Hemisphere supply and alternative export routes are limiting the long-term impact of Gulf disruptions on crude prices."

Brent crude has eased to $72 to $75 a barrel after peaking at $188 in April, when the conflict escalated. WTI crude for August delivery closed up $1.89, or 2.76%, on Tuesday after reports of attacks on shipping near the strait, though the recovery in Gulf oil flows has accelerated. Saudi Arabian crude exports have risen to 6.3 million barrels a day, or 90% of pre-war levels, while the UAE restored shipments to 3.9 million bpd in June, according to Bloomberg-compiled data.

The shift in supply dynamics means the geopolitical risk premium embedded in crude prices may continue to erode even if the strait remains contested. The US has demanded Iran reopen the waterway by Saturday or face unspecified consequences, while US Central Command asserts the strait remains open under American supervision. A sustained closure could still disrupt global oil flows, but the growing availability of non-Gulf supply provides a buffer that did not exist in previous Middle East crises.

The International Energy Agency warned last month that the Iran war would cut global oil consumption by 1.1 million barrels a day this year, a deeper decline than its prior estimate of 420,000 bpd. The demand destruction, combined with rising output from outside the Gulf region, is reshaping the crude market's response to geopolitical events.

Western Supply Growth Reshapes Market Dynamics

The US Department of Energy raised its 2026 crude production estimate to 13.78 million barrels a day, up from 13.72 million in June, while the number of active US oil rigs rose to 445 last week, a 13-month high. Russian crude exports have also climbed, with the four-week average reaching 4.13 million bpd through June 28, the highest since the invasion of Ukraine in 2022, as damage to domestic refineries from Ukrainian drone attacks pushed more crude onto global markets.

OPEC+ plans to boost output by 188,000 bpd in August, though the increase may prove difficult as Middle East producers continue restarting war-curtailed production. OPEC's June crude output rose by 2.34 million bpd to 18.75 million bpd, according to data compiled by Bloomberg.

Refining Margins Keep Gasoline Elevated

While crude prices trend lower, gasoline and diesel remain elevated because refining margins have widened, McGlone said. August RBOB gasoline futures fell 1.64% on Tuesday as the crack spread retreated from a four-year high reached Monday. The US Treasury Department revoked the Iran oil waiver that allowed buyers to legally purchase Iranian oil, responding to renewed attacks on commercial shipping in the strait.

Saudi Arabia cut the price of its Arab Light crude to Asian customers by $11 a barrel for August delivery, a larger decline than the $8 expected, signaling concern about demand in the region's biggest importing market.

The combination of rising non-Gulf supply, softening demand, and the market's willingness to accept US assurances on the strait suggests crude prices face more downside than upside in the coming months. The key risk remains a direct military confrontation that disrupts the estimated 20 million barrels a day of oil that transits the Strait of Hormuz, but traders are increasingly pricing that scenario as unlikely.

This article is for informational purposes only and does not constitute investment advice.