US-Iran deal reopens Strait of Hormuz as oil stocks near 4-decade low

The US and Iran reached a ceasefire agreement Sunday that reopens the Strait of Hormuz, but 15 weeks of blockade have drained global oil inventories to levels not seen since the early 1980s.

The US and Iran reached a ceasefire agreement Sunday that reopens the Strait of Hormuz to toll-free shipping, yet 15 weeks of blockade have drained American strategic reserves to their lowest in more than four decades.

"The geopolitical risk premium that had been built into crude is now being unwound quite aggressively as traders price in the prospect of restored oil flows," said Tim Waterer, chief market analyst at KCM Trade.

Brent crude futures fell 4.2% to $83.68 a barrel Monday, while West Texas Intermediate dropped 4.9% to $80.75 — both hitting three-month lows. The declines extended Friday's 3% slide after President Donald Trump announced on Truth Social that the "toll free opening of the Strait of Hormuz" had been authorized alongside the removal of the US naval blockade. Iran's deputy foreign minister, Kazem Gharibabadi, confirmed the agreement, and a formal signing ceremony is scheduled for June 19 in Switzerland.

The deal removes the immediate supply disruption risk, but the damage to global oil inventories cannot be reversed overnight. The US has drawn about 66 million barrels from the Strategic Petroleum Reserve since late March, with the Trump administration authorizing 172 million barrels in total releases. At the current draw rate of roughly 9 million barrels a week, that quota could be exhausted by early September, leaving the SPR at about 243 million barrels — its lowest since August 1983.

Strategic reserves near the red line

The SPR, built after the 1973 Arab oil embargo and stored in salt caverns along the Gulf Coast, peaked at more than 700 million barrels in 2009. It stood at 349.2 million barrels as of June 5, a three-year low. Commercial inventories are also under strain. Storage tanks at Cushing, Oklahoma — the pricing hub for US crude — have fallen to 21 million barrels, with the latest weekly decline of about 1 million barrels pushing levels toward the 20-million-barrel threshold where operational issues emerge.

"Once you hit the bottom of the tank, the whole operation grinds to a halt," said John Auers, managing director of refined fuels analysis at RBN Energy, a unit of Novi Labs. He noted that tanks typically need 10% to 15% of capacity to function properly because of outlet positions and sediment buildup.

Energy executives warn of price spikes

Industry leaders have struck a more cautious tone than the administration. Neil Chapman, senior vice president at ExxonMobil, said the US is approaching "unprecedented inventory levels" and warned that prices would spike sharply once the critical threshold is breached. Chevron Chief Executive Officer Mike Wirth publicly disputed Energy Secretary Chris Wright's claim that 7 million barrels a day are exiting the Persian Gulf with US military assistance, saying the actual volumes are lower.

Wil VanLoh of Quantum Capital Group was more blunt: "It's going to get ugly." He noted that the global market has never lost 10 million barrels of daily supply — the volume effectively stranded by the Strait's closure — without severe price consequences.

The agreement covers only the immediate ceasefire and navigation rights. A broader negotiation over Iran's nuclear enrichment program — the core unresolved issue — is set to begin during a 60-day ceasefire period. The E4 nations, comprising the UK, France, Germany and Italy, said Sunday they are prepared to lift sanctions on Iran in response to steps on its nuclear program. Commonwealth Bank of Australia commodities strategist Vivek Dhar noted that oil flows through the Strait need only reach 60% to 70% of pre-war levels to return global markets to the oversupply conditions that prevailed before the conflict.

This article is for informational purposes only and does not constitute investment advice.