Key Takeaways:
A rare reversal of global crude flows is underway as Asian refiners export Middle Eastern oil to the US West Coast for the first time in years, driven by a supply glut from the reopened Strait of Hormuz and the lowest American regional inventories in two decades.
Asian refiners are offering Middle Eastern crude to buyers on the US West Coast and Hawaii, a trade route that has been dormant for years, as a supply surge from the reopened Strait of Hormuz collides with the lowest American regional stockpiles since 2004. At least 20 tankers carrying about 35 million barrels of crude have exited the waterway since the US-Iran interim deal took effect, according to ship-tracking data compiled by Bloomberg.
"Asian refiners are well-supplied, and the spot barrels released from Hormuz are directly adding to the regional surplus," said June Goh, senior oil market analyst at Sparta Commodities SA.
The influx has pushed Brent crude back to around $73 a barrel, near levels seen before the conflict began Feb. 28, while flipping the August futures contract into contango for the first time since the war started. Singapore gasoil, the building block for diesel, ended at $111.15 a barrel Monday, still 22% above its pre-war close of $91.42, while gasoline at $100.42 remains 26.6% above the Feb. 27 level, according to data from the Singapore Exchange.
The trade-route reversal signals a structural repricing of regional crude benchmarks. US West Coast crude inventories have fallen to their lowest since 2004, while stockpiles at Cushing, Oklahoma — the delivery point for WTI futures — are at their lowest since 2014, creating a rare arbitrage window for Middle Eastern grades to flow west. UAE-grade crude is being marketed to California refiners for the first time since late last year, and similar cargoes have been offered to Hawaii in what would be the first such delivery since 2018, according to traders familiar with the matter.
Price Spreads Invert as Arbitrage Opens
The price mechanism driving the flow reversal is unambiguous. WTI crude's landed cost on the US West Coast now exceeds that of Murban crude from Abu Dhabi, a spread inversion that has made Middle Eastern grades competitive in a market they rarely reach. Midland-grade MEH crude in Texas has flipped to a premium over WTI, reflecting the local inventory squeeze.
The impact on US exports has been dramatic. American crude shipments to Asia have fallen roughly 50% month-on-month, with refiners including South Korea's GS Caltex halting purchases entirely, according to traders. The shift marks a sharp reversal from the war period, when Asian buyers paid premium prices for US and West African cargoes to replace lost Middle Eastern supply.
China, the world's largest crude importer, has remained on the sidelines, compounding the glut. Its seaborne arrivals are forecast at just 5.80 million barrels a day in June, according to Kpler data — half the 11.39 million bpd average in the three months before the war. Asian imports overall are expected at 20.71 million bpd in June, up only marginally from May's 20.39 million and well below the 26.79 million bpd pre-war average.
Glut Risks Loom as Supply Surge Continues
The supply wave is far from over. Rystad Energy estimates that shut-in production across the Gulf fell to 9.6 million barrels a day by mid-June from 11.7 million bpd three weeks earlier, with output expected to return to pre-war levels by December. Iran alone could add 3.3 million bpd by year-end if sanctions relief holds, the consultancy said.
The International Energy Agency projects global oil supply will fall by 3.9 million bpd in 2026 but rebound by roughly 8 million bpd in 2027 to about 110.3 million bpd. Demand is expected to recover far more modestly, creating a potential surplus of about 5 million bpd next year — a scale that would test OPEC's ability to manage the market.
For now, the contango in Brent futures suggests traders expect the near-term glut to persist as the backlog of trapped Gulf crude clears. But the structural question is whether the market can absorb the coming wave of supply once China returns to full buying, expected from August deliveries onward. If flows through the Strait of Hormuz fail to recover fully while demand picks up, the current surplus could quickly revert to a shortage — a scenario that keeps the oil market on an unusually volatile footing.
This article is for informational purposes only and does not constitute investment advice.
