Oil prices tumbled as markets bet Strait of Hormuz disruptions will ease, with Brent down 10% on the week. The two Middle Eastern crude benchmarks, Dubai and Murban, have flipped into contango, signaling a temporary oversupply.
Ship transits through the Strait of Hormuz remain a fraction of their previous norm of 130-140 per day. The contango structure suggests physical crude is building up regionally as flows struggle to fully recover.
The price drop erases the war premium that built up following geopolitical tensions involving Iran. Markets are now pricing in a swift normalization of tanker traffic through the strategic chokepoint.
Despite the bearish sentiment, actual transit volumes remain depressed, highlighting a disconnect between physical flows and financial speculation. Analysts caution that any escalation could quickly reverse the slide.
Counter_argument: Physical supply through the Strait remains well below normal levels, and the contango may reflect logistical constraints rather than genuine oversupply. A sudden geopolitical flare-up could erase this week's losses in hours.