‘Mini tsunami’ of oil headed for global markets after reopening of Strait of Hormuz — for now

A “mini tsunami” of oil is flooding the global market after the Strait of Hormuz opened and trapped tankers are finally freed, dropping prices to nearly pre-war levels — but the relief might not last long.

August oil futures — contracts to buy at a coming date — dropped to about $70 per barrel Wednesday, the lowest level since the day before the US-Iran war began on Feb. 28, Reuters reported.

That’s about the same price oil was last July, and only about $10 more than before the war exploded — a remarkable turnaround just a week after the US and Iran signed a memorandum of understanding to end the war.

Scores of ships remained have been trapped in the Strait of Hormuz for months — many with valuable barrels of oil. REUTERS

The price drops are being driven by the millions of barrels of oil which have been stranded in the Strait in the nearly four months since Iran closed it, but are now being freed by the day and re-entering the market — leading to a glut of supply and sinking prices.

“The mini tsunami currently seen following the reopening of the ⁠Strait of Hormuz has moved the market from missing barrels to choking on barrels,” said Saxo Bank analyst Ole Hansen.

“So the near ​term focus will be squarely on this wall of barrels and how long it will take for it ​to be absorbed,” Hansen told Reuters.

A staggering 20 million barrels of oil passed through the Strait between Tuesday and Wednesday alone — and that’s even with daily passage rates still trending well below before the war, when about 130 ships moved through the corridor each day.

About 20% of the world’s oil supply moves through the Strait of Hormuz, which made the waterway the flashpoint of the war after Iran blockaded it shortly after being attacked by the US and Israel.

Millions of barrels of oil are leaving the Strait, even with passage still far below what it was before the war with Iran. Getty Images

Oil futures topped out around $126.41 per barrel when the crisis peaked in April.

The memorandum of understanding stipulated that Iran open the straits in return for the US lifting oil sanctions. That deal lasts for 60 days while Iran’s nuclear weapons program undergoes further negotiations.

But the low prices might not last once the oil glut begins to sell off, as tensions still floating over the Strait — a Singaporean ship was attacked by Iran on Thursday — keeping shippers wary of using the passage.

The number of tankers exiting the Strait to offload remains higher than those entering to reload — leading to an imbalance which may not stabilize until next year, according to Reuters.