Week In Review – Oil Markets Retreat as Strait of Hormuz Reopens

Oil markets closed the week 7% lower as the Strait of Hormuz (SoH) officially reopened following the signing of a Memorandum of Understanding (MOU) between the United States and Iran. Under the agreement, Iran pledged to make "best efforts" to facilitate safe passage through the SoH for at least the next 60 days. With U.S. markets closed today in observance of Juneteenth, attention is focused on the return of vessel traffic through the waterway, with ships already beginning to transit the SoH and additional movements expected as early as today.

Following the reopening of the SOH, at least three Saudi supertankers carrying a combined 6 million barrels of crude successfully transited the channel, marking the first major Saudi shipments to leave the region since the conflict began. Shipping activity also accelerated throughout the week, with commercial vessel crossings increasing as operators regained confidence in the waterway.

The reopening of the SoH has prompted revisions to supply outlooks. Goldman Sachs now expects Persian Gulf exports to return to pre-war levels by the end of July, while regional crude production could fully recover by October. The reopening of the SoH and the potential removal of sanctions on Iranian oil could return considerable volumes to the global market over the coming months, contributing to a more bearish supply outlook.

The shipping industry is also monitoring new requirements proposed by Iran. Vessels may require transit permits and additional coordination with Iranian authorities to pass through the SoH. Concerns over potential fees, insurance requirements, and mine-clearing operations remain obstacles to a full return to normal traffic levels, even as crossings increase. Current vessel traffic remains well below pre-conflict averages.

The Energy Information Administration (EIA) reported an 8.3 million barrel crude draw for the week ending June 12, substantially larger than market expectations. Cushing, OK, inventories declined by another 1.6 million barrels, extending an eight-week streak of draws and leaving storage levels near 20 million barrels. As the delivery point for the WTI benchmark, inventory levels at Cushing remain an important indicator for crude pricing. Overall, U.S. crude and gasoline inventories remain about 6% below their five-year averages, while distillate inventories sit roughly 13% below normal seasonal levels.

Not all uncertainty has disappeared, however. Planned U.S.-Iran talks scheduled for Friday were canceled, raising questions about the durability of the ceasefire agreement. Meanwhile, Israel continued military operations against Hezbollah in Lebanon, creating concerns that broader regional tensions could still threaten energy infrastructure or shipping routes. While negotiations continue to develop, volatility could remain in the weeks ahead.

Prices in Review

Crude opened the week at $81.40/bbl on Monday and dropped slightly to $81.10/bbl on Tuesday. Prices then fell even further on Wednesday, settling at $76.59/bbl, before reaching the weekly low of $75.53/bbl on Thursday. U.S. markets are closed Friday in observance of the Juneteenth holiday. Overall, crude prices declined by $5.87/bbl during the week, representing a 7.21% decrease.

Diesel opened the week at $3.3448/gal on Monday before declining to $3.2719/gal on Tuesday. Prices continued lower on Wednesday, settling at $3.2034/gal, and reached the weekly low of $3.1850/gal on Thursday. Overall, diesel prices declined by $0.0159/gallon during the week, representing a 4.78% decrease.

Gasoline opened the week at $3.0134/gal on Monday before sliding to $2.9564/gal on Tuesday. On Wednesday, prices reached the weekly low of $2.8940/gal. Prices increased slightly on Thursday, climbing to $2.9098/gal, but remained below levels seen earlier in the week. Overall, gasoline prices declined by $0.1036 per gallon over the week, representing a 3.44% decrease.