The oil market withstands the biggest supply shock in history! Middle Eastern oil "sneaks" through the Strait of Hormuz but the disappearing inventory cushion is increasing the risk of oil price rebound.

Since the outbreak of the Middle East conflict at the end of February, the closure of the Strait of Hormuz, a global energy transport chokepoint, has led to the most serious supply shock in history - with over 10 million barrels per day of Middle East crude oil supply disrupted. However, a series of alternative solutions are helping to keep international oil prices below $100 per barrel, in stark contrast to the industry's previous most pessimistic forecast of oil prices soaring to $200 per barrel. One key alternative solution is that more and more Gulf energy producing countries are using clandestine methods to transport crude oil and other energy products to international markets, helping to alleviate the supply shock. Middle East Crude Oil "Dodge" through the Strait of Hormuz It is reported that Kuwait recently used a controlled oil tanker to transport a batch of Liquefied Petroleum Gas (LPG) out of the Persian Gulf through the Strait of Hormuz. According to traders, Kpler Ltd., and ship tracking data, the "Gas Umm Al Rowaisat" oil tanker belonging to the Kuwait National Petroleum Company (KPC) shipping department crossed the Strait of Hormuz after leaving Kuwait's Mina Al Ahmadi refinery on May 28th loaded with LPG. The ship then reappeared near the northwest coast of India on June 7th. Trader, ship tracking data, and Kpler data show that the "Gas Umm Al Rowaisat" subsequently transferred the cargo to the KPC leased Very Large Crude Carrier (VLCC) "Badrinath" through a Ship-to-Ship (STS) transfer. The VLCC completed loading last month and had its ship positioning signal turned off until it reappeared in the waters near India last Sunday. The ship is currently showing the port of destination as the Paradip Port in India. Kuwait is not alone. Major energy producing countries including the UAE, Saudi Arabia, and Qatar are increasingly using this clandestine method to export crude oil and Liquefied Natural Gas (LNG). Ciaran Tyler, Chief Research Analyst at Kpler, said, "Over the past few weeks, the UAE has successfully used this method to transport goods, so it is not surprising that other countries are following suit." He stated that the UAE began employing this strategy last month to ensure a continuous supply of LPG to its key buyer, India. Last weekend, near the coast of Oman, a total of 16 oil tankers gathered to complete Ship-to-Ship transfers of millions of barrels of crude oil that had been stuck in the Persian Gulf. These tankers transported the crude oil out of the Strait of Hormuz without transmitting their positioning signals and then loaded the oil onto other tankers through Ship-to-Ship transfers before heading to Asia and other regions. Informants revealed that some ships crossed the strait at night with lights turned off, and crews were required to maintain radio silence throughout. It is worth noting that most of these tankers are owned by governments of Gulf energy-producing countries, which helps to avoid paying exorbitant fees demanded by a few ship owners willing to risk crossing the Strait of Hormuz. These tankers are forming an expanding network of "stealth fleets," enabling the flow of stalled crude oil to resume. Larry Johnson, head of freight at commodity trading firm Mercuria Energy Group, said, "We do observe, indeed, a trend increasing. Mainly government-owned vessels seem to be able to pass. These vessels seem to have some sort of communication channel or way to ensure safe passage." Meanwhile, according to U.S. President Trump, the U.S. military has "secretly" helped more than 200 commercial ships pass through the Strait of Hormuz. Trump tweeted on June 10th that he had ordered the U.S. military to carry out a secret mission last month to assist oil tankers and other commercial ships passing through the Strait of Hormuz. The operation has facilitated "over 1 billion barrels of oil smoothly pass through the strait and enter the open market, with over 200 commercial ships safely traversing the strait." He also stated that "the control of the Strait of Hormuz is the United States', not Iran's." Additionally, Trump told reporters at the White House that the U.S. has been exporting oil for millions of barrels, and Iran only recently found out. This is why oil is now at $85 to $90 a barrel and hasn't risen to $250 a barrel. Although traditional ship tracking data shows little change in the volume of shipments, shipping industry executives, Asian crude oil buyers, and satellite imagery paint a completely different picture: the blockage of the Strait of Hormuz has significantly eased, passage is becoming more stable, and transportation volume is increasing. TankerTrackers.com, which uses satellite tracking to monitor ships, reported that on just one day, June 6th, 12 ships loaded with non-Iranian Middle East crude oil were conducting transfers outside the Strait of Hormuz. Shipping data shows that prior to the recent batch of "stealth sailing," about one-quarter of large oil tankers stranded in the Persian Gulf had successfully escaped. Georgios Sakellariou, a freight analyst at Signal Maritime, said that there are still about 90 large oil tankers stranded in the Persian Gulf, down from about 160 in early April. He said, "More and more ships are crossing the strait with their AIS turned off. This trend is evident from the decrease in the amount of stranded oil in the Persian Gulf." "However, the transport volume is still not enough to return to the pre-war level of flow." Oil Prices Withstand the Largest Supply Shock in History, but Risks of Price Increases Remain Recent signs indicate that Middle East crude oil continues to flow to the international market. In the past few days, Kuwait and the UAE have both offered solutions to sell crude oil delivered outside the Strait of Hormuz. Satellite images show that in recent weeks, several major crude oil export terminals in the UAE have seen continuous loading of ships. Market traders also state that Asian buyers are receiving more and more successful quotes for Middle East crude oil that has been successfully transported out of the strait, and more sources are expected to appear in the coming days to weeks. Data shows that at least two Very Large Crude Carriers (VLCCs) with a capacity of 2 million barrels of crude oil each successfully crossed the Strait of Hormuz at the end of last month and began sending positioning signals near Kuwait's coast. An unnamed ship owner stated that his company had signed a contract to transport the crude oil carried by Kuwaiti vessels that had successfully crossed the Strait of Hormuz. Others believe that Kuwait has arranged safe passage for at least two or more VLCCs carrying crude oil. Iraq is also accelerating the loading of crude oil in its major ports and increasing the amount of oil being shipped from the Persian Gulf. Ship tracking data shows that since the beginning of this month, about 7 million barrels of Iraqi crude oil have been observed leaving through the Strait of Hormuz or loading at the Basra Port in southern Iraq. This amount is on par with the total crude oil loading and export volume in April and May. Previously, a group of oil tankers that had long been stranded and loaded with Iraqi crude oil began leaving one after another by the end of May. Although the current transport volume is still significantly lower than before the outbreak of the war, the energy consulting firm Rapidan Energy Group estimates that about 2 million barrels of crude oil and related products are being transported out of the Persian Gulf through various means on a daily basis. These additional supplies indicate that, despite triggering the largest scale supply disruption in the history of the oil market, the market is successfully delivering enough crude oil to buyers. Coupled with the surge in U.S. crude oil exports and alternative pipeline transportation spanning hundreds of miles across the Middle East, this has led to a nearly 30% decrease in international oil prices from the peak of the war. The pre-war oversupply has also helped alleviate the impact to some extent, and the coordinated release of historic strategic oil reserves by various governments has also alleviated market pressure to a certain extent. Maria Angelicoussis, CEO of the largest shipping group in Greece, Angelicoussis Group, had previously stated, "After more than three months of conflict, the world has shown surprising resilience. Commodity prices have risen by 50% to 60%, and Asian LNG prices have risen by 90%, but they have not reached the extreme highs that I personally expected." Currently, oil prices are far below the $200 per barrel level that many analysts initially feared, leaving room for negotiations between Trump and Iran. Despite Trump repeatedly emphasizing that a peace agreement is within reach, if oil prices were to spike again, the White House would face greater pressure to reach an agreement quickly to avoid economic impacts on a global scale. Meanwhile, global crude oil inventories are decreasing at a record pace, making the market more susceptible to new supply disruptions. As excess supplies diminish, even relatively small production outages could trigger sharp price surges. According to calculations by Goldman Sachs, as of the end of April, global crude oil inventories could meet global demand for 101 days, dropping to 98 days by the end of May, below the "hundred-day alert line." The "hundred-day line" for crude oil inventories is considered an important psychological and practical threshold for energy security. Once breached, it indicates that the market's capacity to absorb shocks has significantly weakened, increasing the likelihood of high and volatile international oil prices. In a low inventory environment, any additional supply disturbances could spark dramatic fluctuations in oil prices. Amid ongoing geopolitical disruptions in the global energy market, the U.S. Strategic Petroleum Reserve (SPR) is depleting at an unusually rapid rate, and commercial inventory levels are approaching multi-decade lows. According to data from the U.S. Energy Information Administration (EIA), the U.S. strategic petroleum reserve has decreased by about 10% since this spring to about 374 million barrels, reaching levels close to the lowest point since July 2024. Toril Bosoni, head of the Oil Industry and Markets Division at the International Energy Agency, warned that if global crude oil inventories continue to decline at the current rate, inventory levels could reach a critical point before the summer peak demand season arrives. This could mean that the International Energy Agency would need to coordinate emergency stock releases once again. However, Bosoni stated that emergency stock releases are only a temporary measure and cannot solve supply issues. With such a massive loss in crude oil supply, significant demand shrinkage would be needed to achieve balance. Greg Sharenow, Head of Commodities Investment Team at The Pacific Investment Management Company (Pimco), said, "Each week, stocks in the system are decreasing by 70 to 80 million barrels. You can't do this forever." "In the coming months, conservatively speaking, you will face a significantly less flexible system because these buffer stocks have been heavily depleted." S&P Global Energy estimates that the shipping restrictions in the Strait of Hormuz have impacted over 1.2 billion barrels of potential oil circulation. Tom Baker, head of Vitol Bahrain, one of the world's largest independent oil trading companies, pointed out that no matter how fast production is restored, "there will ultimately be a gap - call it what you will - it's a missing 1 billion barrels of oil." Furthermore, recent clashes between the U.S. and Iran have cast a shadow over the prospects of negotiations between the two countries. In consecutive days of conflict, the scale and scope of U.S. military action have expanded, and Iran's stance and actions have become increasingly hardline. In the early hours of June 11th local time, the Islamic Revolutionary Guard Corps Navy of Iran announced that due to repeated violations of ceasefire agreements by the U.S., the Strait of Hormuz has been closed until further notice. The Revolutionary Guards warned that any vessels should not leave their anchorages in the Persian Gulf and Oman Gulf and approaching the Strait of Hormuz would be considered as "acting in collaboration with the enemy." Iran also refuted the U.S. claims of ships passing through the Strait of Hormuz. On the 11th local time, the Islamic Revolutionary Guard Corps Navy of Iran stated that two vessels attempting to illegally pass through the Strait of Hormuz were struck. Iran has not yet released more details about this incident. If Iran tightens its control over the Strait of Hormuz and disrupts the clandestine transportation of crude oil by Gulf oil-producing countries, coupled with the gradual depletion of global crude oil inventories, the oil market may have to face the largest supply shock in history, and international oil prices may once again rise.