Oil Market's Glut Narrative Explodes as Tanker Prices Soar

The oil market's narrative of a looming glut has been completely upended. Just a month ago, analysts were warning about a potential oversupply due to recovering tanker traffic through the Strait of Hormuz and rising non-OPEC supply. However, with the recent Houthi strikes against Saudi tankers in the Bab el-Mandeb Strait, the situation has dramatically changed.

Brent crude prices have topped $100 per barrel as a result, while Saudi Arabia's oil exports through the Red Sea have slowed to a trickle. The Strait of Hormuz, which normally handles 20 million barrels per day, has seen its flow reduced significantly, while Bab el-Mandeb, which was moving an estimated 4-5 million barrels per day of Saudi crude, appears to be nearly shut.

The refined-products side is also severely strained, with Middle Eastern refineries forced into shutdowns and Ukrainian drones targeting Russian refining capacity. As a result, refining margins have hit all-time highs, with the benchmark 3-2-1 crack spread surging above $60-$65 per barrel in mid-July.

The physical market is reflecting this reality, with commercial inventories drawing down and global demand contracting by around 5% in the second quarter. The IEA notes that OECD countries still hold over 1 billion barrels of government-controlled emergency stocks, but warns against complacency.