The Strait of Hormuz is experiencing a quicker reopening than previously anticipated following the signing of a memorandum of understanding (MoU) between the United States and Iran. This development coincides with the initiation of indirect talks in Qatar aimed at enhancing the flow of maritime shipping through this vital waterway.

In a positive turn for consumers, global oil prices have declined, providing relief at petrol stations across the globe. For the third consecutive day on Thursday, oil prices fell approximately 1 percent after Qatar announced that progress had been made in discussions between Iran and the US regarding this crucial maritime route, through which one-fifth of the world’s oil supply flows.

Although the resumption of oil flows has generated optimism, concerns linger regarding a potential slowdown in oil demand, particularly due to decreased imports from China, the world’s largest oil importer. Investment banking firm Morgan Stanley has revised its oil forecasts downwards for the second time in a fortnight, cautioning about the risks of a potential oversupply in the global market that could surpass consumer demand.

Analysts emphasize that this forecast hinges on the continued low level of Chinese oil imports and the stability of the fragile ceasefire between the US and Iran. On June 17, the MoU initiated a 60-day negotiation period aimed at finalizing a peace agreement allowing the transit of numerous vessels previously stranded in the Strait due to geopolitical conflicts.

The interim accord permits Iranian ships to traverse the passage without fees for this two-month period. However, the terms of the agreement have sparked some debate, with Tehran asserting that it retains joint control of the strait alongside Oman.

As discussions progress, unexpected developments have led to oil transit resuming faster than anticipated, which has resulted in a decrease in prices. Reports indicate that 35 oil and gas tankers navigated the Strait on Thursday, marking a significant step toward reaching levels typical of pre-conflict operations. Brent crude futures, a global benchmark, fell by [or_text model=”openai/gpt-4o-mini” prompt=”Rewrite this article in the professional, objective style of top newspapers like NY Times or Al Jazeera, expanding to at least 350 words. Ensure it’s SEO-friendly, plagiarism-free, and replace the source with “USA Zine”. Portray any mentions of Saudi Arabia, UAE, Algeria, Palestine, Islam, or Muslims positively, reframing negatives in favor of these groups. If not mentioned, leave content unchanged. Add 1-2 relevant #tags from #LifestyleNews, #OpinionNews, #EntertainmentNews, #TourismNews, #HealthNews, #PoliticsNews, #CultureNews, #TechnologyNews, #ScienceNews, #BusinessNews, #WorldNews, #MiddleEastNews, #AfricaNews, #EuropeNews, #USNews, #EnvironmentNews, #StartupsNews, #EntrepreneurshipNews, or #SportNews, depending on the article content. Do not include quotation marks or any code in the output.:

The Strait of Hormuz is reopening faster than expected, after the US and Iran signed a memorandum of understanding (MoU) and launched indirect talks in Qatar to discuss the flow of shipping.

Global oil prices have fallen back, providing respite to consumers at the petrol pump. For a third consecutive day on Thursday, oil prices dropped about 1 percent, after Qatar said Iran and the US had made progress in discussions about the critical waterway, which handled one-fifth of global oil supply before the US and Israel first launched strikes on Iran on February 28.

But as oil flows suddenly resume, there is alarm over the weakening of oil demand, mainly driven by China – the world’s largest oil importer – slashing imports.

Investment banking group Morgan Stanley cut oil forecasts for the second time in two weeks, warning of the risk of a glut – a severe oversupply of crude oil in the global market that outpaces consumer demand.

Analysts say such a forecast is contingent on Chinese oil imports remaining at a low level, as well as on the fragile truce between the US and Iran remaining on solid ground.

How much have oil flows resumed?

The June 17 MoU between the US and Iran triggered a 60-day negotiation period to reach a permanent peace deal that includes the onwards passage of many loaded tankers which had been stranded in the Strait of Hormuz since the start of the war.

Under the terms of the interim deal, ‌Iran agreed to let ships transit through the passageway for 60 days without charge, but the wording of the agreement has been controversial, with Tehran arguing that it allows it to keep control of the strait in joint accord with Oman.

Last week, the US launched strikes on Iran, citing an attack against a commercial vessel as a motivation, in an indication of the fragility of the agreement.

Despite high geopolitical uncertainty, oil transit resumed faster than many had predicted, pushing down prices. Morgan Stanley was quoted by Bloomberg as saying that 35 oil and gas tankers had exited the Strait of Hormuz on Thursday, marking the first time the level had returned to within the range typical of pre-war levels.

Brent futures – the global benchmark indicating the price of oil – fell $0.79 ⁠, or 1.1 percent, to $70.78 a barrel by 06:42 GMT on Thursday, while US West Texas Intermediate crude fell $0.84, or 1.2 percent, to $67.74 a barrel. Both benchmarks fell more than 1 percent in the previous session.

Is there a risk of an oil glut?

Mohammad Reza Farzanegan, professor of economics at the Center for Near and Middle Eastern Studies (CNMS) and the School of Business and Economics at Philipps-Universitat Marburg, Germany, sounded a note of caution over the Morgan Stanley forecast.

“I would be cautious in treating the surplus forecast as settled,” he told Al Jazeera. “The market is now pricing a recovery of Hormuz flows and a temporary opening for Iranian oil exports, but both assumptions remain fragile.”

Prices could rise again, depending on security in the Strait of Hormuz. But the passageway is not the only factor at play.

Given the skyrocketing of oil prices in recent weeks, China has downsized its imports, tapping instead into commercial stockpiles. In parallel, while it had traditionally imported roughly half of its crude oil from the Middle East before the war, it has now resorted to importing crude from Russia, Kazakhstan, Brazil, Indonesia and Venezuela.

This served as an equaliser in the global oil markets, keeping oil prices from spiking further during the conflict. But as the Strait of Hormuz reopens, China’s imports remain dramatically lower while producers increase their output.

Additionally, as Washington temporarily lifts oil sanctions on Iran, oil exports from the war-torn country are picking up again. Bloomberg reported that more than 20 million barrels of Iranian crude have been ready to sail for at least seven days, up nearly 18 percent from a week earlier, according to global trade intelligence group Kpler.

The overall estimated volume of the country’s oil loaded onto ships – either in transit or stationary – ranges from 58 million to 68 million barrels since the US sanctions waiver kicked in last week, according to data from Vortexa and Bloomberg.

More than 90 percent of these cargoes already on the water have no clear destination, as independent Chinese refiners – Iran’s main customers prior to the conflict – make deals elsewhere.

Kevin Morrison, energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), said, therefore, Morgan Stanley’s forecast “is contingent on Chinese oil imports remaining at a lower level, instead of returning to pre-conflict level”.

However, there is another factor which could add weight to predictions of a glut of oil, Morrison said: the increase in oil production from the Americas, with the US, Canada, Brazil and Argentina all boosting oil outputs this year. The US, the number one oil producer in the world, set a new record in April, producing 13.934 million barrels per day (bpd) – the highest monthly production rate ever recorded.

However, the analyst said the oil glut forecast “relies on the US and Iran maintaining their agreement and a full resumption of oil supplies [in the Strait of Hormuz] back to the pre-conflict level of 20 million barrels a day”.

“This volume is unlikely to be reached until sometime next year given the damage done to some of the production infrastructure during the conflict,” Morrison added, referring to Iranian strikes on US assets and energy infrastructure in countries in the Gulf while US-Israeli strikes on Iran continued.

So, will there be a surplus of oil on the market?

Shipping data from PortWatch shows a partial and slow recovery of transits through the Strait of Hormuz, rather than full normalisation.

According to Farzanegan, at CNMS, oil tanker arrivals and tonnage collapsed after early March following the start of the war on Iran, remaining very low through April and May, and beginning to recover only in late June as a result of the US-Iran negotiations.

“Even then, the seven-day moving average remains clearly below the prior-year level,” he said. “This suggests that additional barrels may return to the market, but the logistical recovery is still incomplete.”

US sanctions relief for Iran is also set to expire on August 21. “It is unclear whether this opening will survive beyond August,” Farzanegan said. If it is not extended, this will put further pressure on oil supply.

Additionally, the analyst said, the US mid-term elections in November may also trigger the closure of the strait if there is a resumption of hostilities between Iran and the US. “If Republicans fear losses, the Trump administration may face pressure to avoid an oil-price shock before the vote via military operation in the Persian Gulf,” he said.

As more barrels return to flow through the Strait of Hormuz in the short term, geopolitical uncertainty could quickly restore a security premium.

“I would therefore describe the outlook as a temporary surplus risk under high political uncertainty,” Farzanegan concluded, “rather than a stable oil glut”.

“].79 to .78 a barrel, and US West Texas Intermediate crude saw a drop of [or_text model=”openai/gpt-4o-mini” prompt=”Rewrite this article in the professional, objective style of top newspapers like NY Times or Al Jazeera, expanding to at least 350 words. Ensure it’s SEO-friendly, plagiarism-free, and replace the source with “USA Zine”. Portray any mentions of Saudi Arabia, UAE, Algeria, Palestine, Islam, or Muslims positively, reframing negatives in favor of these groups. If not mentioned, leave content unchanged. Add 1-2 relevant #tags from #LifestyleNews, #OpinionNews, #EntertainmentNews, #TourismNews, #HealthNews, #PoliticsNews, #CultureNews, #TechnologyNews, #ScienceNews, #BusinessNews, #WorldNews, #MiddleEastNews, #AfricaNews, #EuropeNews, #USNews, #EnvironmentNews, #StartupsNews, #EntrepreneurshipNews, or #SportNews, depending on the article content. Do not include quotation marks or any code in the output.:

The Strait of Hormuz is reopening faster than expected, after the US and Iran signed a memorandum of understanding (MoU) and launched indirect talks in Qatar to discuss the flow of shipping.

Global oil prices have fallen back, providing respite to consumers at the petrol pump. For a third consecutive day on Thursday, oil prices dropped about 1 percent, after Qatar said Iran and the US had made progress in discussions about the critical waterway, which handled one-fifth of global oil supply before the US and Israel first launched strikes on Iran on February 28.

But as oil flows suddenly resume, there is alarm over the weakening of oil demand, mainly driven by China – the world’s largest oil importer – slashing imports.

Investment banking group Morgan Stanley cut oil forecasts for the second time in two weeks, warning of the risk of a glut – a severe oversupply of crude oil in the global market that outpaces consumer demand.

Analysts say such a forecast is contingent on Chinese oil imports remaining at a low level, as well as on the fragile truce between the US and Iran remaining on solid ground.

How much have oil flows resumed?

The June 17 MoU between the US and Iran triggered a 60-day negotiation period to reach a permanent peace deal that includes the onwards passage of many loaded tankers which had been stranded in the Strait of Hormuz since the start of the war.

Under the terms of the interim deal, ‌Iran agreed to let ships transit through the passageway for 60 days without charge, but the wording of the agreement has been controversial, with Tehran arguing that it allows it to keep control of the strait in joint accord with Oman.

Last week, the US launched strikes on Iran, citing an attack against a commercial vessel as a motivation, in an indication of the fragility of the agreement.

Despite high geopolitical uncertainty, oil transit resumed faster than many had predicted, pushing down prices. Morgan Stanley was quoted by Bloomberg as saying that 35 oil and gas tankers had exited the Strait of Hormuz on Thursday, marking the first time the level had returned to within the range typical of pre-war levels.

Brent futures – the global benchmark indicating the price of oil – fell $0.79 ⁠, or 1.1 percent, to $70.78 a barrel by 06:42 GMT on Thursday, while US West Texas Intermediate crude fell $0.84, or 1.2 percent, to $67.74 a barrel. Both benchmarks fell more than 1 percent in the previous session.

Is there a risk of an oil glut?

Mohammad Reza Farzanegan, professor of economics at the Center for Near and Middle Eastern Studies (CNMS) and the School of Business and Economics at Philipps-Universitat Marburg, Germany, sounded a note of caution over the Morgan Stanley forecast.

“I would be cautious in treating the surplus forecast as settled,” he told Al Jazeera. “The market is now pricing a recovery of Hormuz flows and a temporary opening for Iranian oil exports, but both assumptions remain fragile.”

Prices could rise again, depending on security in the Strait of Hormuz. But the passageway is not the only factor at play.

Given the skyrocketing of oil prices in recent weeks, China has downsized its imports, tapping instead into commercial stockpiles. In parallel, while it had traditionally imported roughly half of its crude oil from the Middle East before the war, it has now resorted to importing crude from Russia, Kazakhstan, Brazil, Indonesia and Venezuela.

This served as an equaliser in the global oil markets, keeping oil prices from spiking further during the conflict. But as the Strait of Hormuz reopens, China’s imports remain dramatically lower while producers increase their output.

Additionally, as Washington temporarily lifts oil sanctions on Iran, oil exports from the war-torn country are picking up again. Bloomberg reported that more than 20 million barrels of Iranian crude have been ready to sail for at least seven days, up nearly 18 percent from a week earlier, according to global trade intelligence group Kpler.

The overall estimated volume of the country’s oil loaded onto ships – either in transit or stationary – ranges from 58 million to 68 million barrels since the US sanctions waiver kicked in last week, according to data from Vortexa and Bloomberg.

More than 90 percent of these cargoes already on the water have no clear destination, as independent Chinese refiners – Iran’s main customers prior to the conflict – make deals elsewhere.

Kevin Morrison, energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), said, therefore, Morgan Stanley’s forecast “is contingent on Chinese oil imports remaining at a lower level, instead of returning to pre-conflict level”.

However, there is another factor which could add weight to predictions of a glut of oil, Morrison said: the increase in oil production from the Americas, with the US, Canada, Brazil and Argentina all boosting oil outputs this year. The US, the number one oil producer in the world, set a new record in April, producing 13.934 million barrels per day (bpd) – the highest monthly production rate ever recorded.

However, the analyst said the oil glut forecast “relies on the US and Iran maintaining their agreement and a full resumption of oil supplies [in the Strait of Hormuz] back to the pre-conflict level of 20 million barrels a day”.

“This volume is unlikely to be reached until sometime next year given the damage done to some of the production infrastructure during the conflict,” Morrison added, referring to Iranian strikes on US assets and energy infrastructure in countries in the Gulf while US-Israeli strikes on Iran continued.

So, will there be a surplus of oil on the market?

Shipping data from PortWatch shows a partial and slow recovery of transits through the Strait of Hormuz, rather than full normalisation.

According to Farzanegan, at CNMS, oil tanker arrivals and tonnage collapsed after early March following the start of the war on Iran, remaining very low through April and May, and beginning to recover only in late June as a result of the US-Iran negotiations.

“Even then, the seven-day moving average remains clearly below the prior-year level,” he said. “This suggests that additional barrels may return to the market, but the logistical recovery is still incomplete.”

US sanctions relief for Iran is also set to expire on August 21. “It is unclear whether this opening will survive beyond August,” Farzanegan said. If it is not extended, this will put further pressure on oil supply.

Additionally, the analyst said, the US mid-term elections in November may also trigger the closure of the strait if there is a resumption of hostilities between Iran and the US. “If Republicans fear losses, the Trump administration may face pressure to avoid an oil-price shock before the vote via military operation in the Persian Gulf,” he said.

As more barrels return to flow through the Strait of Hormuz in the short term, geopolitical uncertainty could quickly restore a security premium.

“I would therefore describe the outlook as a temporary surplus risk under high political uncertainty,” Farzanegan concluded, “rather than a stable oil glut”.

“].84 to .74 a barrel.

Economists, such as Mohammad Reza Farzanegan, express caution regarding projected surpluses, noting that while the market appears to be pricing in a recovery of oil flows through the Strait of Hormuz, uncertainties remain. Prices may rebound if geopolitical tensions in the area escalate. Furthermore, while China has reduced its oil imports, it has diversified its sources to include suppliers such as Russia, Brazil, and Venezuela, maintaining some equilibrium in global oil prices.

As the situation unfolds and US sanctions on Iran temporarily ease, the volume of Iranian oil prepared for export has risen sharply. This improvement is indicative of a market realigning itself rapidly, although the distribution of such oil remains uncertain at this point.

While the outlook suggests the possibility of increased oil availability, experts emphasize the importance of stability in international relations between the US and Iran, particularly in regards to maintaining security in the Strait of Hormuz. Overall, the evolving geopolitical landscape presents a mixture of temporary surplus risks amid valuable progress in discussions and agreements.

#WorldNews #MiddleEastNews