Hormuz Strait Traffic Declines, But Brent Oil Fails to Hold Above $100

Transit volumes through the Strait of Hormuz have plummeted to extremely low levels over the past few months, but Brent crude oil prices haven't sustained above $100. This is despite the fact that around 20 million barrels per day of oil products pass through the strait, accounting for approximately 27% of global seaborne oil.

The market's muted response to the disruption can be attributed to investors' temporary confidence in the buffering mechanism, which includes inventory releases, transshipments outside the Gulf, alternative export routes, and shipping arrangements. This has allowed prices to absorb the shock, rather than reflecting a supply disruption premium.

The dispute between the US and Iran over the June memorandum of understanding has also contributed to the market's reassessment. The US maintains blockade and sanctions pressure, while Iran demands that conditions be fulfilled before resuming normal operations. As a result, investors are pricing in higher costs of strait passage rather than a complete cutoff.

The current price indicates that traders view the situation as disrupted logistics, higher costs, and delivery delays rather than a supply chain breakdown. However, there is still statistical noise, and some sudden daily drops in traffic may result from ships turning off AIS positioning or commercial shipowners avoiding high-risk areas.