Brent crude has retreated to the low $70s after surging above $120 per barrel during the closure of the Strait of Hormuz, but the sharp decline may be masking continued risks to the global oil market, according to eToro.
Although prices have largely returned to pre-conflict levels, the Strait of Hormuz has yet to fully resume normal operations, shipping disruptions persist, and diplomatic negotiations remain fragile. The disconnect highlights how financial markets respond to changing expectations rather than current physical supply conditions.
Commenting on the market, Nagham Hassan, Market Analyst at eToro, said:“Oil prices are driven by expectations as much as they are by physical supply. The signing of the memorandum of understanding on June 17, followed by the US sanctions waiver allowing Iran to resume selling oil in US dollars, led markets to price out the risk of a prolonged disruption in the Strait of Hormuz. That significantly reduced the geopolitical risk premium, even though tanker backlogs and shipping delays across the Gulf are still working their way through the system.
“At the same time, additional supply has entered the market more quickly than many investors appreciate. Russia is exporting record volumes of crude from its Baltic and Black Sea ports, according to Reuters, despite facing domestic fuel shortages and importing gasoline for the first time in years. Rather than being contradictory, this reflects the impact of Ukrainian strikes targeting Russian refineries instead of export infrastructure, allowing crude that cannot be processed domestically to flow into global markets. Meanwhile, an estimated 67 million barrels of Iranian crude became eligible for export under a single US sanctions waiver, according to estimates from physical trade data firm Kpler.”
Hassan noted that underlying market fundamentals remain tighter than current prices suggest.
“One of the clearest indicators is the continued drawdown in US oil inventories. Oil supply is determined not only by current production but also by the amount of crude held in storage. Even as US production has reached record levels, the Strategic Petroleum Reserve continues to decline. According to the US Energy Information Administration, total US crude inventories, including the Strategic Petroleum Reserve, fell to 743.3 million barrels in the week ending June 19, the lowest level since October 1984.
“If the market were genuinely as well supplied as current prices imply, strategic inventories would likely be stabilising or rebuilding rather than continuing to fall. That disconnect suggests prices may have moved ahead of the underlying physical market and could quickly reverse should diplomatic progress falter or geopolitical tensions escalate again.”
