Analysis: Strait of Hormuz Reopening -- Key Takeaways


   
Karim Bastati
DTN Analyst

   Analysis: Strait of Hormuz Reopening -- Key Takeaways

   VIENNA (DTN) -- Oil futures slumped to a three-month low Monday (6/15) 
morning after the U.S. and Iran announced they had agreed to an interim deal to 
end the war and reopen the Strait of Hormuz. Here are some key takeaways of 
what an imminent resumption of oil flows might mean.

    

   Immediate but Short-lived Relief

   Around 300 laden tankers are ready to traverse the waterway, and about as 
many empty tankers are waiting on the other side and could load within days. 
After this initial wave, however, export flows will be slow to return to 
pre-war levels given a multitude of logistical constraints, from tanker 
availability and voyage times to damaged infrastructure and curbed production. 
Before the blockade, around 140 commercial ships transited the chokepoint on 
average every day, including tankers transporting some 15 million bpd of crude 
oil and 5 million bpd of refined products.

    

   Timing Is Critical

   The International Energy Agency has warned that inventories could hit a "red 
zone" by July-August should flows not be restored soon. When and at what speed 
exports return will be crucial to gauge shortage risks. A restart this weekend, 
as suggested by the White House, would come just in time to mitigate the worst 
outcomes. Another month of disrupted flows, in contrast, could lead inventories 
in some regions near operationally necessary minimums and jeopardize fuel 
supply security. The U.S. Energy Information Administration estimates 
commercial oil and fuel inventories to fall to 2.56 billion bbl by the end of 
June and 2.27 billion bbl by the end of 2026, compared to 2.82 billion bbl at 
the beginning of the year. In the U.S., total petroleum inventories have 
recently plummeted to their lowest in more than two decades.

    

   Full Recovery Will Take Months

   More than 10 million bpd of crude oil production has been forced offline 
since the beginning of the war. Many wells will require heavy maintenance and 
months of operating before approaching pre-war output levels. Energy 
infrastructure which sustained damage during the war will also require repairs, 
including oil fields, pipelines, export terminals, and processing plants. At 
least two-thirds of curbed Middle Eastern supply could return within three 
months, but some production is likely permanently lost.

    

   Bottom Line

   Even an immediate reopening will leave the global oil market in a deficit 
for months to come, the size of which will depend on how quickly supply chains 
can be restored and how much demand has been permanently destroyed. For the 
U.S., this means that while exports may ease off their record highs, they are 
bound to continue at an elevated rate, with strong international demand drawing 
down inventories and adding a premium to otherwise softening fuel prices for 
domestic buyers.

    

    

    




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