Brent Crude Drops 6.8% as Hormuz Reopening Talks Advance

Brent crude fell 6.8% to $83.98 a barrel Monday as Hormuz reopening talks advanced, even though a political deal alone cannot restore the 20.9 million barrels a day that once crossed the chokepoint.

The US Energy Information Administration estimated in early June that Middle East production losses exceeded 11 million barrels a day, with OECD oil inventories at their lowest level since 2003, the agency's data show.

WTI crude closed down 5.11% to $79.93, while RBOB gasoline fell 4.74%, after President Donald Trump called off planned strikes on Iran and Tehran said negotiations with Oman to resume shipping were making progress. US 10-year Treasury yields slipped 6.7 basis points to 4.677% as traders trimmed geopolitical risk premiums.

Even a durable ceasefire would not end the crisis quickly. A Reuters survey of analysts estimated full restoration of oil flows could take four to six months, while US energy authorities expect most lost Middle Eastern production to return only by early 2027.

Shipping volumes remain a fraction of normal

Before the conflict, Hormuz carried about 20.9 million barrels of oil and petroleum products a day in the first half of 2025 — roughly 20% of global liquid fuel consumption and a quarter of all oil moved by sea. By the first quarter of 2026, shipments had fallen to 14.6 million barrels a day, from 20.7 million in the fourth quarter of 2025, while LNG flows dropped to 7.3 billion cubic feet a day from 10.1 billion.

Normal traffic has not resumed. Only four cargo vessels crossed the strait on July 31, including two very large crude carriers each holding about 2 million barrels, and just three the previous day. Some ships have switched off automatic identification systems, obscuring the true scale of traffic.

Shipowners need proof the route is safe before they return. Insurance companies must cut war-risk premiums, ports must restore loading schedules, and producers must restart shut-in wells. In March, the cost of shipping oil on supertankers from the Persian Gulf to Asia reached its highest level since at least November 2005, as vessels trapped inside the Gulf reduced tanker availability.

OPEC+ increases cannot fill the gap

OPEC+ approved a 188,000-barrel-a-day production increase for September, completing the reversal of the 1.65 million barrels a day of voluntary cuts introduced in 2023. But higher quotas do not automatically translate into barrels reaching the market. The eight OPEC members subject to quotas pumped 20.276 million barrels a day in June — 6.246 million below their combined target — while Russia produced 8.928 million barrels a day, almost 1 million below its quota, according to a Reuters survey.

The September increase amounts to less than 1% of pre-crisis Hormuz volumes and less than 0.2% of global production. It may influence sentiment, but it cannot compensate for the loss of millions of barrels from Middle Eastern exporters.

Hormuz also cannot be considered separately from the Bab el-Mandeb Strait. After traffic through Hormuz declined, Saudi Arabia redirected about 5 million barrels a day of exports through its East-West Pipeline to the Red Sea port of Yanbu — more than double the pre-war level — with roughly 80% of those shipments passing through Bab el-Mandeb. That route has come under threat from Yemen's Houthis, who have said they will block vessels linked to Saudi Arabia.

Bypassing Bab el-Mandeb is costly. A voyage from Yanbu to Taiwan via the Suez Canal, the Mediterranean and around the Cape of Good Hope takes about 48 days, versus 19 days through the strait, with fuel costs rising to $2.87 million from $1.26 million per voyage and Suez transit adding another $1 million in fees.

The market now has little buffer to absorb another shock. US commercial crude inventories ended July at their lowest level since 2018, and OECD stocks were already at two-decade lows. A rapid recovery could create a new problem: if OPEC+ producers raise output while Middle Eastern exporters restore shipments and Iran expands official sales under sanctions relief, the current shortage could flip to oversupply and a sharp price fall.

This article is for informational purposes only and does not constitute investment advice.