Oil is approaching pre-war levels due to abundant supplies economy

The decline in concerns about supplies and the return of oil flows through the Strait of Hormuz put pressure on global crude prices, continuing their decline today, Thursday, and approaching the levels that prevailed before the outbreak of the US-Israel war on Iran.

• By 06:45 GMT, Brent crude futures for August delivery fell 1.3% to $72.91 per barrel.
• While US West Texas Intermediate crude fell 88 cents, or 1.24%, to $69.43 per barrel. The two crude oil prices recorded their lowest levels since February 27.

Brent August contracts also traded lower than September contracts, indicating abundant supply in the near term.

“The speed of this decline surprised many, as markets expect Middle Eastern oil to return at a much faster pace than many expected just two weeks ago,” said IG analyst Tony Sycamore.

Brent crude lost more than $3 upon settlement of trading yesterday, Wednesday, while West Texas Intermediate crude also fell by about $3 as supply concerns eased.

Return of flows through Hormuz

In an indication of improving supply conditions, US Secretary of Energy Chris Wright said that flows through the Strait of Hormuz were close to their normal levels before the war, explaining that about 72 tankers carrying approximately 20 million barrels of oil had crossed the Strait during the past 24 hours.

Wright added, during his participation in the Reuters Global Energy Forum, that “a complete return to normalcy will take several weeks” due to the need to remove mines planted by Iran in the sea lanes, stressing that the United States is able to ensure the continued flow of energy from the Gulf.

The American minister pointed out that oil flows from the Gulf have become higher than their pre-war levels, adding: “Iran will no longer have the ability to close the Strait of Hormuz. This is a crucial point, as this was the most important card in their hand, and we are withdrawing this card from them.”

The rise in supplies from the Middle East, along with Iran’s willingness to increase its oil sales after obtaining a temporary exemption from US sanctions, contributed to the decline in the prices of actual crude oil shipments around the world.

The Sultanate of Oman also announced the opening of temporary routes to facilitate the exit of oil tankers from the Strait of Hormuz, in coordination with the International Maritime Organization, at a time when regional consultations intensified regarding the future management of the vital sea corridor.

Expectations of lower prices

Macquarie Financial Group analysts expected oil prices to quickly return to pre-war levels as supply chains adapt and the Strait of Hormuz fully reopens.

They expected the average price of Brent crude to reach $67 per barrel during the third quarter of this year, compared to $62 for West Texas Intermediate crude, compared to an average of $94 and $87, respectively, during the second quarter.

Although the US Energy Information Administration announced that crude oil inventories had declined to their lowest level since 1984 as a result of the high demand for refining and the government’s withdrawal from the strategic reserve, the markets ignored this data and focused more on developments in the Strait of Hormuz and the prospects for global supplies.