Oil Prices Retreat as Hormuz Reopens, but Supply Risks Persist

Oil prices fall as Hormuz shipping recovers, easing geopolitical risk while supply, exports, and peace talks remain uncertain.

 Oil prices have retreated to levels last seen before the US-Israel conflict with Iran began in late February, as tanker traffic through the Strait of Hormuz registers a tentative increase and negotiators report progress toward a permanent peace arrangement. Brent crude futures stood at $70.82 per barrel early on July 2, 2026, down more than 1 percent and below any point recorded since February 27. The international benchmark has now erased more than 38 percent from its post-conflict peak above $126 per barrel on April 30.
The decline forms part of a steeper selloff that has placed both Brent and West Texas Intermediate (WTI) on course for a roughly 20 percent drop over June and a 30 percent quarterly plunge, the largest such quarterly decline since the pandemic-driven collapse in early 2020. Prices have converged near $71 per barrel, effectively removing the geopolitical risk premium that had been embedded earlier in the year.
Developments in the Strait of Hormuz underpin much of the price movement. The waterway, which normally handles one-fifth of global oil and liquefied natural gas trade, saw at least 40 vessel transits on June 30, up from 22 on June 28, although volumes remain well below the pre-conflict average of roughly 130 daily crossings. An interim memorandum of understanding signed on June 17 between the United States and Iran provided for the temporary lifting of a US naval blockade in the Gulf of Oman in exchange for Iranian commitments to facilitate safe passage. Iranian officials have stated they will make their “best efforts” to arrange safe transit while continuing to assert sole authority over movements through the strait.
Market participants have interpreted the agreement and subsequent traffic data as evidence that the most acute phase of supply disruption has passed. US President Donald Trump described progress on Iran’s denuclearization as moving along well, while Qatari-mediated indirect talks between US and Iranian officials produced reports of positive advances on outstanding issues in the memorandum. Some shipping has resumed, including the transit of at least five supertankers carrying approximately 10 million barrels of Saudi crude loaded at Ras Tanura. Saudi Aramco has shifted to spot pricing to accelerate sales into Asia.
On the other hand, Iran has moved quickly to capitalize on the eased restrictions. Iranian parliament speaker and chief negotiator Mohammad Bagher Ghalibaf stated that more than 40 million barrels of oil have been exported since the naval blockade was lifted, contrasting with the preceding 50 to nearly 60 days during which “we were genuinely unable to export even a single barrel of oil.” Data from tanker tracking sources indicate Iran exported around 50 million barrels in the two weeks after June 17, equating to roughly 1.66 million barrels per day for June, with a single-day peak near 8 million barrels. Discounts on Iranian crude have narrowed and realized prices for Iranian oil have risen about 20 percent compared with pre-memorandum levels.
Other regional producers show mixed recovery. The United Arab Emirates (UAE) has restored exports to nearly 85 percent of pre-conflict levels through its Fujairah bypass pipeline. Saudi exports remain approximately 25 percent below earlier rates, although June volumes rose about 10 percent from May. Iraq produced 1.76 million barrels per day in June, up from 1.49 million in April but still far below pre-war levels above 4 million barrels per day. Kuwait’s output jumped to 1.65 million barrels per day in June from 580,000 barrels per day in May.
Against this backdrop, several investment banks have lowered their price projections. UBS reduced its 2026 Brent forecast to $84 per barrel from $93 and its 2027 forecast to $75 from $85. The bank now expects an average of $80 per barrel for the second half of 2026, with the third-quarter estimate cut by $25 to around $80. UBS analysts attributed the revisions to lower geopolitical risk and a quicker rebound in Hormuz flows than previously anticipated. Iranian crude exports have regained momentum as the blockade eases, while UAE exports have recovered strongly. The bank sees the market moving from a deficit through the third quarter of 2026 into a surplus of 2.9 million barrels per day in the fourth quarter and 3.8 million barrels per day in 2027, with the projected inventory rebuild reduced to about 1 billion barrels.
Some analysts have highlighted the potential for renewed oversupply. Morgan Stanley noted that the Strait is reopening faster than expected while high US exports and low Chinese imports, which fell to 6 million barrels per day in June against a typical 10-11 million range, remain in place. Goldman Sachs observed that tanker traffic via Hormuz is recovering rapidly, creating a discount for near-term barrels relative to future delivery amid weaker Asian demand for Middle Eastern grades. These views frame the current price decline as the market pricing in a return to surplus conditions.
Other market observers caution that such assessments may be premature. Much of the recent increase in Hormuz transits involves tankers that had been stranded for three months during the period of restricted access rather than new loadings from Gulf production sites. Regional output remains constrained by earlier shut-ins caused by insufficient storage capacity when tankers could not depart. Wells require time to ramp back up, and high shipping costs combined with limited insurance availability continue to deter full resumption of voyages. Inbound tanker traffic remains limited, with one recent estimate showing only around 11 total crossings on a single day. Energy Aspects analyst Amrita Sen observed that shipping costs are incredibly high and that sufficient shippers willing to re-enter the area remain difficult to find. ING analysts Warren Patterson and Ewa Manthey noted that tanker vessel movements still appear limited and that any acceleration in inbound traffic would represent a clear headwind to expectations of rising prices.
Vandana Hari of Vanda Insights stated that several key issues in the memorandum remain unresolved, although both sides have backed off confrontation on the interim Hormuz transit regime for the time being. She expects crude prices to continue grinding lower until the backlog of stranded barrels clears and noted that prices could swing into oversold territory before a fresh supply-demand recalibration occurs once Persian Gulf supply normalizes. Neil Crosby of Sparta Commodities described the situation as neither stable nor sustainable for politics or for the state of the oil market in terms of supply, demand, and trade, adding that it remains highly doubtful the market is “out of the woods” yet.
The UAE has taken a separate commercial step to position itself for the shifting market environment. Abu Dhabi National Oil Company (ADNOC) is changing the official selling price basis for its offshore grades Upper Zakum, Das, and Umm Lulu from a differential to Murban futures to a differential against the Dubai benchmark for prompt cargoes loading two months ahead. The adjustment addresses a previous structural distortion in which medium-sour offshore grades were priced against the premium light-sweet Murban contract, making them less competitive for Asian buyers once additional supply became available. The change aligns the grades with other medium-sour benchmarks such as Oman and Qatar’s Al-Shaheen and is intended to help ADNOC capture greater Asian spot market share as regional supply normalizes.
Market structure has also shifted. The front-month Brent spread turned negative on June 24, moving the market into contango and signaling that near-term supply shortages are easing. US crude stocks have fallen to their lowest levels since 2018 as refinery runs increased, while the release of barrels from the US Strategic Petroleum Reserve continues to add near-term supply.
Recent exchanges of strikes, including attacks on commercial vessels in the strait, have introduced fresh uncertainty even as diplomatic channels remain active. The next round of talks is expected around mid-July, and the 60-day negotiation window established under the June memorandum runs until August 21. Analysts note that any breakdown could rapidly reintroduce risk premium, while a faster-than-expected ramp in UAE, Iranian, and other regional production could push prices below current levels.
With the immediate stock of available barrels expected to be absorbed over the coming weeks, attention will shift to whether market fundamentals can sustain a balanced supply-demand dynamic without renewed supply shocks. Low prices are expected to encourage global crude importers to return to the market and gradually clear any overhang. The pace at which regional production resumes, the durability of shipping and insurance conditions, and the outcome of ongoing negotiations will determine whether current price levels prove sustainable or give way to further adjustment.
With reporting by Al Jazeera, Fortune, Oil Price, and the Reuters

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