Hormuz Reopens as Traders Price Out the War Premium

The U.S.-Iran agreement to reopen the Strait of Hormuz and lift the maritime blockade has pushed oil prices below $80 as traders price out the war premium. While the immediate tension surrounding the blockade has eased, the market remains sensitive to potential escalations in Lebanon.

China is currently experiencing a period of significant demand destruction following the US-Iran conflict. According to the country’s National Bureau of Statistics, China’s crude throughput has plunged by 9.1% year-over-year to 12.7 million b/d. Refinery runs in China have reached their lowest levels since April 2022, driven by negative refining margins and an ongoing product export ban. This downturn persists despite Beijing's recent attempt to entice the downstream sector with a new product export quota.

The decline in Chinese demand is reflected in port inflows and inventory shifts. In June to date, seaborne crude imports suggest that the multi-year lows seen in May may continue, as inflows to Chinese ports dropped by 600,000 b/d month-over-month to 6 million b/d. However, China has begun to draw down its 1.3-billion-barrel crude inventory; Kpler data shows current stocks are almost 20 million barrels lower than two months ago. This energy-driven volatility is mirrored in the broader economy, as Chinese retail sales contracted by 0.6% from a year ago, marking the first contraction since the COVID-19 pandemic.

The global energy sector is responding to these shifts through significant capital reallocation and expansion:

• US LNG Expansion: Venture Global has filed an application with the US Federal Energy Regulatory Commission to build an 11.7 mtpa expansion at its 28 mtpa Calcasieu Pass 2 terminal in Louisiana.
• European Buybacks: Norway's Equinor is increasing its share buybacks, moving from a $1.5 billion projection in February to a 2026 target of $3 billion, fueled by windfall profits from the US-Iran conflict.
• Upstream Activity: Libya's National Oil Corporation finalized three upstream deals with Repsol and ENI for exploration in offshore block 07 and onshore blocks 01 and 07. Additionally, Chevron reached an agreement to acquire a 70% stake in Greece’s Block 10 offshore hydrocarbon block.
• Regional Consolidation: Hungary’s MOL agreed with Serbia to buy its national oil company, NIS, following a 15-day approval extension from OFAC to conclude the deal involving Russia’s Gazprom Neft.

The reopening of Hormuz removes a primary geopolitical bottleneck, but China's shrinking throughput and declining retail activity suggest that supply-side relief may meet a cooling demand environment.

Watch the trajectory of