Even though the Strait of Hormuz reopened for more than 20 days until the United States and Iran clashed militarily again, releasing a massive volume of oil into the market, demand for Middle Eastern crude has been weaker than expected. In response, some Middle Eastern producers have begun discounting their crude.
On the 21st (local time), CNN said, "Something unexpected happened during the brief three weeks when most of the Strait of Hormuz reopened," and reported, "More than 200 million barrels of crude that had been trapped in the Persian Gulf poured into the market at once, but buyers showed little interest."
According to energy data firm Kpler, QatarEnergy and the Abu Dhabi National Oil Company (ADNOC) discounted crude by $6–$9 per barrel to secure Southeast Asian buyers. Even now, about 18 million barrels of non-Iranian crude that passed through the Strait of Hormuz are sitting on tankers outside the Persian Gulf, waiting for buyers.
Earlier this month, Reuters also said, "As producers ramp up output and exports via the Strait of Hormuz, Gulf crude is flooding into the Asian market," and reported, "ADNOC sold Upper Zakum crude to China's Dongming Petrochemical and Shenghong Petrochemical, with transaction prices $7–$9 per barrel below Dubai crude on a Fujairah FOB basis."
The global oil market suffered severe turmoil after the Iran war broke out, but over the five months of fighting, the market appears to have gradually adapted to the supply shock. According to JP Morgan, global oil demand now remains about 4 million barrels per day below the level at the start of the war.
One reason for sluggish crude demand is a shortage of refining capacity to process the oil. The Wall Street Journal (WSJ) said that after Iran attacked 30 refining facilities in the Middle East during the war, refineries have already reached maximum utilization.
In particular, a reduction in imports by China, the world's largest crude importer, had an impact. According to maritime data firm Signal Ocean Research, China's crude imports plunged from more than 12 million barrels per day during the war to below 8 million. The decline reflects China's large-scale stockpiling of crude before the war began. As a result, Signal Ocean Research analyzed that China's actual crude demand fell by about 1.2 million barrels per day during the war, and that the full import drop of about 5 million barrels does not represent an equivalent decline in real demand.
An increase in alternative supply sources is also seen as a factor lowering demand for Middle Eastern crude. According to the International Energy Agency (IEA), since the war began, producers in the Americas—including the United States, Canada and Brazil—have increased output and exports, boosting crude shipments from the Atlantic Basin to Asia by about 3.5 million barrels per day. Russia, too, has seen its oil export routes open after U.S. sanctions were lifted following the war, reducing buyers' need to rush to secure Middle Eastern crude.
The situation is similar for Iranian crude, which temporarily gained export access under a truce with the United States. In the weeks after signing a memorandum of understanding (MOU) with the United States, Iran moved 70 million barrels of crude out of the Strait of Hormuz. But China was the only country that bought Iranian crude, and even China slashed its purchases. China's Iranian crude imports last month plunged from about 1.5 million barrels per day to 630,000.
Analysts say demand for Iranian crude is limited because buyers must bear payment and shipping risks under U.S. sanctions, and Chinese refiners can secure substitute crude from elsewhere. Last month, Reuters reported that while Chinese state refiners are considering resuming Iranian crude imports, ample alternative supply and weakening domestic fuel demand will likely limit buying interest.
Mahmoud Khaghani, an energy expert and former Director General at Iran's Oil Ministry, said in an interview with the Iranian outlet Arman-e Melli, "Just because export routes temporarily opened does not mean Iranian crude has substantively returned to the global market." He noted that while a 60-day sanctions waiver could offer short-term opportunities, it does not by itself guarantee the return of Iranian crude to the market.
However, if major countries including China start rebuilding crude stockpiles, prices could rise amid tight supply. China currently holds 1.9 billion barrels of crude, equivalent to about 117 days of demand, while the U.S. Strategic Petroleum Reserve is at its lowest level since the 1980s. Goldman Sachs projected that China's imports will resume relatively soon, given the government's policy to maintain high stockpile levels.
Kieran Tompkins, senior commodities economist at Capital Economics (CE) in the United Kingdom, said, "For demand to recover, buyers will have to believe that a meaningful agreement has been reached that gives confidence a truce between the United States and Iran can be sustained over the long term."