Hormuz Is Open Again and the Oil Shortage Is Turning Into a Glut

35 tankers left the Strait of Hormuz in a single day, back at prewar levels for the first time. At the same time OPEC+ is raising output quotas. Oil prices are falling faster than expected.

After the Islamabad Memorandum, shipping through the Strait of Hormuz is normalizing faster than forecast. Morgan Stanley counted tanker departures back at prewar levels for the first time, while OPEC+ releases an additional 188,000 barrels per day from July.

The reopening of the Strait of Hormuz is proceeding faster than most analysts expected. According to Morgan Stanley, 35 oil and gas tankers left the strait in a single day, bringing traffic back to prewar levels for the first time since the war began in late February. The basis is the Islamabad Memorandum of June 17, in which Iran agreed to allow passage free of charge for sixty days while indirect talks on a permanent arrangement continue in Qatar.

From Shortage to Glut

While the stranded tankers flow out, the supply side keeps opening up at the same time. Seven OPEC+ states have decided to raise their production targets by another 188,000 barrels per day from July, the fourth quota increase since the closure of Hormuz. The combination of released stockpiles, returning exports and higher quotas is pushing down a price that traded above 100 dollars a barrel during the war. On July 2, Al Jazeera was already asking whether the shortage has turned into a glut.

Normalization Remains Incomplete

Shipping data shows at the same time that the recovery remains partial for now. The seven day average of transits is still clearly below the prior year level, and shipowners continue to price in political uncertainty, because the memorandum's sixty day negotiation window expires in mid August. Tehran also insists on the reading that it retains control of the strait jointly with Oman. Today's glut therefore comes with a caveat the market knows well.