Ceasefire or not, the world is swimming in oil

By Javier Blas

After the war, the hangover. While hysteria about the closure of the Strait of Hormuz gripped the oil market for the last few days, the reality couldn’t be more different: a wave of Persian Gulf crude was forming. Now, the swell is heading into a global oil market that’s already oversupplied — hence Brent crude trading below $70 a barrel on Tuesday.

The Northern hemisphere summer, which provides a seasonal lift to demand, is the last obstacle before the glut becomes plainly obvious. Oil prices are heading down – quite a lot.

If anything, the Israel-Iran “12-Day War” has worsened the supply/demand imbalance even further – not just for the rest of 2025, but into 2026 too. On the demand side, geopolitical chaos is bad for business — let alone tourism. Petroleum consumption growth, already quite anemic, is set to slow further, particularly in the Middle East. But the biggest change comes from the supply side: The market finds itself swimming in oil.

Ironically, one of the countries pumping more than a month ago is Iran. Hard data is difficult to come by, as Iran does its best to obfuscate its petroleum exports. Still, available satellite photos and other shipping data suggest that Iranian production will reach a fresh seven-year high above 3.5 million barrels a day this month, slightly up from May. That bears repeating: Iranian oil production is up, not down, despite nearly two weeks of Israeli and American bombing.

Reading between the lines, President Donald Trump has made two things clear: He doesn’t want oil prices above $70 a barrel, and he still thinks Washington and Tehran can sit down to talk. So it’s very unlikely that the White House will tighten oil sanctions on Iran, an issue where Trump is very similar to former President Joe Biden: Lots of talk, very little action.

Across the Persian Gulf, Saudi Arabia, Kuwait, Iraq and the United Arab Emirates are all pumping more than a month ago. True, a large chunk of the increase was expected after the OPEC+ cartel agreed to hike production quotas. Still, early shipping data suggests that exports are rising a touch more than expected, particularly from Saudi Arabia.

Petro-Logistics SA, an oil tanker-tracking firm used by many commodity trading houses and hedge funds, estimates that Saudi Arabia will supply the market with 9.6 million barrels a day of crude in June, the highest level in two years. The firm measures the flow of barrels into the market, offsetting stockpiling moves, rather than wellhead output (the latter is OPEC’s preferred measure).

“Looking at the first half of the month, there has been a large rush of oil flowing out of the Persian Gulf region,” Daniel Gerber, the head of Petro-Logistics, tells me. Data covering the first couple of weeks of June show strong exports from Iraq and the United Arab Emirates, two countries that typically cheat on their OPEC+ production levels. The risk here is more, not less.

And then there’s US shale output. In May, the American oil industry was on the ropes, with crude approaching $55 a barrel. At those prices, US oil production was set to start a gentle decline in the second half of the year and fall further in 2026. The recent conflict that drove crude to a peak of $78.40 a barrel handed US shale producers an unexpected opportunity to lock-in forward prices, helping them to keep drilling higher than otherwise. Anecdotally, I hear from Wall Street oil bankers that their trading desks saw some of the largest shale hedging in years.

With shale, small price shifts matter a lot: The difference between booming production and declining output is measured in a fistful of dollars, perhaps as little as $10 to $20 a barrel. At $50, many companies are staring at financial calamity and production is in free-fall; $55 is survivable; $60 isn’t great, but money still flows and output holds; at $65, everyone is back to more drilling; and at $70 and above, the industry is printing money and output is soaring.

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 one in 2003. Amid the carnage, oil keeps flowing – often in greater quantities. When the conflict ends, the flow increases further. The Iran-Israel conflict isn’t over yet. The ceasefire is, at best, tentative. And other supply disruptions may change the outlook. But, right now the world has more oil than it needs.