The return of around 160 million barrels of oil stranded inside the Persian Gulf is widening crude discounts and easing the physical market, creating a more favourable procurement environment for Indian refiners after months of acute supply tightness triggered by disruptions in the Strait of Hormuz.
Some West African crudes from Angola and Congo are now trading at discounts of $4-11 a barrel to Dated Brent, while Middle Eastern benchmarks, including Oman, Dubai and Murban, have also moved to wide discounts. This marks a sharp reversal from the unprecedented market tightness seen in March and early April.
Gulf crude and product exports have risen from less than 2 million barrels per day (bpd) in May to more than 9 million bpd in recent days, as laden vessels held back during the disruption began exiting the region, according to HSBC. The nearly 7-million-bpd increase is arriving faster than the market can absorb through additional demand, higher refinery runs or inventory restocking.
The stranded stock, estimated at 160 million barrels as of June 17, comprises around 90 million barrels of non-Iranian oil and 70 million barrels of Iranian crude. At a release rate of 8-9 million bpd, the backlog represents nearly 20 days of supply and could be exhausted in roughly two weeks.
HSBC said the surge had created a short-term “mini-glut”, even though the underlying market is expected to remain in deficit during the third quarter. “The rate of change in supply is outpacing the rate of change in demand,” it said. The IEA estimates a third-quarter shortfall of around 1 million bpd, while the EIA projects a deficit of as much as 7 million bpd, based on a more cautious Hormuz recovery scenario.
The improving pricing backdrop comes after Indian refiners had already protected crude availability by diversifying away from disrupted Middle Eastern supplies. Following a decline in March, they replaced Gulf barrels with cargoes from Russia, the US, Oman, West Africa and South America.
“Indian crude imports have broadly returned to pre-conflict levels,” HSBC said. Russian oil was also trading at a small discount to Brent, supporting purchases by Indian refiners. The broader sourcing base reduced India’s dependence on the immediate restoration of Hormuz traffic and limited the risk of refinery feedstock shortages.
Japan and South Korea, which remain more dependent on Gulf crude than India, suffered deeper import declines during the early weeks of the crisis and relied on strategic petroleum reserve releases. Indian refiners, however, have shown limited interest in additional Middle Eastern cargoes because many Asian buyers have already secured supplies through July and August.
They also remain cautious about Iranian crude unless US sanctions relief is extended beyond August.
The Gulf rebound may not be sustained. ANZ Research said the initial surge in vessel movements had “dried up”, with “transits still in single digits, with no sustained recovery evident.” Multiple vessels reversed course after a June 25 attack near Omani waters, while mine-clearing and unresolved insurance requirements remain risks to shipping.
US strategic reserve releases remain elevated at around 1.3 million bpd, while oil held on water has declined to below 1.1 billion barrels, ANZ said. It also noted that the Brent prompt spread remained compressed at around $4 a barrel.
The relief in crude, however, has not fully extended to refined products. ANZ said gasoline inventories remain lean, while diesel and jet fuel cracks continue to trade at elevated levels. The market, it said, has shifted from “crude scarcity to refining scarcity”, with the constraint increasingly lying in the ability to convert available crude into transport fuels.
Once the stranded cargoes are absorbed and immediate selling pressure fades, HSBC said, “Brent could move back towards $80 a barrel or higher.”