Filenews 26 June 2025 - by Javier Blas
After the war, the hangover. While the hysteria over the closure of the Strait of Hormuz has been pervasive in the oil market in recent days, the reality could not be more different: a "wave" of crude oil was forming in the Persian Gulf. Now, the wave is heading towards a global oil market that is oversupplied – which is why Brent crude was trading below $70 a barrel on Tuesday.
Summer in the northern hemisphere, which provides a seasonal boost to demand, is the last hurdle before overabundance becomes apparent. Oil prices are going down – significantly.
If anything, the Israel-Iran "12-day war" has exacerbated the supply/demand imbalance even further – not only for the rest of 2025, but also for 2026. On the demand side, geopolitical chaos is bad for businesses – let alone tourism. The growth in oil consumption, which is already quite anaemic, is set to slow down further, especially in the Middle East. But the biggest change comes on the supply side: The market is swimming in oil.
Ironically, one of the countries that drew the most, compared to the previous month, is Iran. Hard data is hard to come by, as Iran is doing everything it can to cover its oil exports. Still, available satellite imagery and other transport data suggest Iranian production will reach a new seven-year high of more than 3.5 million barrels per day this month, slightly up from May. I will repeat: Iranian oil production is increasing, not decreasing, despite nearly two weeks of Israeli and American bombing.
If we look behind the words, President Donald Trump has made two things clear: He doesn't want to see oil prices exceed $70 a barrel, and he still believes that Washington and Tehran can return to negotiations. Thus, it is unlikely that the White House will tighten sanctions on Iranian oil, an issue on which Trump bears a striking resemblance to former President Joe Biden: Too much talk, little action.
On the other side of the Persian Gulf, Saudi Arabia, Kuwait, Iraq and the United Arab Emirates are pumping more than they did a month ago. It is true that much of the increase was expected, as OPEC+ agreed to increase production quotas. However, early data on shipping show that exports are growing a little more than expected, especially from Saudi Arabia.
Petro-Logistics SA, an oil tanker monitoring company used by traders and hedge funds, estimates that Saudi Arabia will supply the market with 9.6 million barrels of crude in June, a two-year high.
"Looking at the first half of the month, there has been a big rush in the flow of oil from the Persian Gulf region," Daniel Gerber, head of Petro-Logistics, tells me. Data for the first two weeks of June showed strong exports from Iraq and the United Arab Emirates, two countries that usually "steal" about their OPEC+ production levels.
And then there's shale oil production in the U.S. In May, the U.S. oil industry was in trouble, with crude approaching $55 a barrel. At these prices, U.S. oil production was set to begin a mild decline in the second half of the year and decline further in 2026. The recent clash that drove crude to a peak of $78.40 a barrel gave U.S. shale producers an unexpected opportunity to lock in futures prices, helping them boost drilling, with greater intensity than otherwise. Wall Street oil company bankers report seeing an increase in shale drilling.
With shale, small price changes matter greatly: The difference between production booming and declining production is measured at a handful of dollars, perhaps as little as $10 to $20 a barrel. At $50, many companies are facing financial disaster, and production is in free fall—$55 is sustainable—$60 isn't great, but money is still flowing and production is maintained—at $65, everybody is going back to more drilling—and at $70 and up, the industry wins and production skyrockets.
In the oil market, history is a very good guide. Look at what happened after the first Gulf War in 1990-1991, or the second in 2003. In the midst of a slaughter, oil continues to flow – often in larger quantities. When the conflict ends, the flow increases further. The Iran-Israel conflict is not over yet. The ceasefire is, at best, temporary. Other supply disruptions may also change the outlook. But, right now the world has more oil than it needs.
Rendering – Editing: Lydia Roubopoulou
