Hormuz flows remain constrained, but signs point to near-term recovery

Market & trading calls

• Crude oil: Israel–Iran tensions and Middle East vessel risks elevate Brent and WTI; robust summer refinery runs tighten sweet crude supply despite OPEC+ easing cuts.
• Refined products: Middle distillates surge on Iranian capacity risks and low ARA stocks; gasoline faces summer oversupply; naphtha sees mild support if Hormuz tension persists.
• Natural gas: US heatwave and Middle East tensions buoy Henry Hub, TTF, and JKM; steady production and strong LNG feedgas demand limit storage injections, tightening balances.
• Metals: Gold and silver stay near highs amid safe-haven flows and low real yields; copper steady with Chinese demand and Middle East iron ore constraints; nickel weakens.
• Agriculture: Soybean oil rallies on stronger biodiesel demand and bullish RFS; wheat climbs on harvest, capped by Black Sea supply; coffee and cocoa soften on ample stocks.

Story of the Week: Hormuz flows remain constrained, but signs point to near-term recovery

Although a complete Iranian closure of the Strait of Hormuz (SoH) remains unlikely due to the economic and political costs involved, recent military escalation has had a pronounced impact on regional flows. Following Israeli strikes on Iran beginning June 13 and subsequent US military action on June 22, Kpler data shows a marked decline in Middle Eastern Gulf exports via Hormuz across several key commodities. Crude exports, which account for more than 60% of transits through the strait, have dropped sharply, with multiple VLCCs reversing course near Hormuz since mid-June. As of June 26, crude flows had not recovered materially, although early signs of a rebound are emerging. These are supported in part by political developments: President Trump’s recent comments implying tolerance for Chinese imports of Iranian crude have been widely interpreted as a softening of sanctions enforcement. This has encouraged renewed interest from China’s independent refiners, particularly given that Iranian barrels are trading at a $3–6/bbl discount to Brent. With flows to China having declined from 1.77 Mbd pre-election to 1.36 Mbd, up to 370 kbd could return in the near term, supporting a potential uplift in Iran’s outbound volumes. LNG flows, typically sensitive to geopolitical risk, have shown a faster recovery trajectory. Vessel activity through the strait has picked up following the ceasefire agreement between Israel and Iran, a sign of regained confidence among shippers. In contrast, NGL flows remain highly volatile. Iranian LPG exports fell to below 150 kt last week - the lowest since early April - pushing expected June volumes down to just 450 kt, the weakest monthly performance since February 2022. This represents a sharp reversal from the 10.5 Mt record achieved earlier in 2024. Clean petroleum products (CPP) and chemicals have also failed to show any sustained recovery as of June 25. Disruptions to MEG diesel and jet exports pose a particular risk to Europe, especially with the onset of peak summer demand for aviation fuel. Meanwhile, suppressed chemical flows - driven in part by logistical bottlenecks and rising feedstock costs - threaten broader disruption across downstream petrochemical markets. Fertilizer exports remain similarly constrained, putting pressure on key importers such as India and Brazil.

Overall, while LNG offers a potential bellwether for stabilization, the majority of MEG commodity flows via the SoH remain well below pre-crisis levels, underscoring the strait’s fragility in the face of geopolitical stress. However, a rise in Middle Eastern exports led by a rebound in crude volumes is likely in the coming week as key Iranian export infrastructure remains intact and Trump’s remarks have revived Chinese independent refiners’ demand for Iranian barrels.

Daily Middle Eastern Gulf commodity exports via Hormuz (indexed since June 13)

Source: Kpler

Weekly performance across commodities and indices (Wednesday - Wednesday)

Commodities broadly corrected this week as geopolitical risk premiums rapidly unwound, following a US-brokered ceasefire between Israel and Iran. A sharp reversal in energy prices led the downturn, with crude and product benchmarks retracing most of their recent gains. Agricultural markets, especially softs, remained under pressure from seasonal harvest flows and improving supply outlooks. Macro sentiment was steadier, with modest gains in equities, metals, and Bitcoin (+3.7% w/w) helping cushion the broader commodity index.

Brent (-11.8% w/w) and WTI (-11.6%) fell steeply after the 12-day Middle East conflict concluded with limited disruption to physical supply. The collapse in Dubai and Brent backwardation signals fading prompt tightness, with traders re-entering spot markets as Hormuz traffic normalizes. OPEC+ is expected to proceed with a 411 kbd supply increase in August, keeping to its phased rollback despite weak demand signals. Iranian exports remain steady near 1.7 Mbd, while talk of US sanctions relief lacks concrete implementation. Barring renewed escalation, the crude market is shifting back to a structure of oversupply, with balances seen building into Q4.

Refined products followed crude lower. Gasoil (ICE -6.9%) and RBOB gasoline (-8.3%) underperformed as fading conflict risks and rising refinery throughput eased immediate concerns over distillate tightness. Diesel cracks in Europe and Asia weakened after ADNOC’s abrupt allocation cuts were partially reversed, and VLCC activity rebounded near Hormuz. Naphtha (NWE -9.2%) continues to lag as petrochemical demand stays weak and freight premiums fade. In the US, refiners are maximizing light products ahead of peak summer demand, but cracks are retreating amid strong inventories and muted export growth.

Gas benchmarks retraced recent gains, with TTF (-8.7%) and JKM (-2.4%) both lower w/w. The geopolitical risk premium linked to Strait of Hormuz disruption faded swiftly, shifting focus back to ample supply and seasonally soft demand. European inventories remain strong, and Asian LNG demand has yet to meaningfully improve outside Japan. US feedgas demand remains robust post-maintenance, though Henry Hub slipped slightly on cooler forecasts and record production. Overall, price action has turned technical, but fundamental pressure should continue to dominate unless summer weather spikes again.

Gold (-2.1%) and silver (-3.1%) softened as risk sentiment stabilized and US Treasury yields ticked higher. Dollar strength remains subdued, but positioning is stretched after safe-haven buying in early June. Industrial metals were steadier, with copper (+0.4%) and zinc (+0.6%) gaining marginally on resilient Chinese demand and tight European smelter availability. Aluminum (-0.3%) held ground despite soft physical premiums. Nickel (-0.3%) continues to slide as Indonesian output outpaces battery-grade demand growth. The broader metals complex is likely to remain rangebound with limited fresh macro or demand catalysts.

Soft commodities extended declines. Arabica ( -5.0%) led losses, as Brazil’s harvest advanced and ICE-monitored inventories climbed for a fourth consecutive week. Robusta (-5.0%) and cocoa (-3.2%) were similarly pressured, with West African mid-crop arrivals improving and managed money net long positions at risk of liquidation. Sugar (-0.6%) held firmer on marginal Indian supply downgrades, but seasonality remains a drag. Orange juice (+0.7%) stabilized after last week’s plunge, though updated Florida and Brazil forecasts point to ongoing surplus. Overall, softs face persistent downside unless weather or supply shocks intervene.

Grain and oilseed markets corrected lower. Soybean oil (CBOT -5.7%) and soybeans (-5.4%) gave back prior gains, pressured by improved US weather forecasts and modest biodiesel demand downgrades. Wheat (-8.7%) slumped to fresh lows as Northern Hemisphere harvests ramp up and Black Sea export competition remains fierce. Corn (-5.4%) tracked soybeans lower despite firm ethanol margins, as yield prospects improve across the US Midwest. While oilseeds retain some structural tightness on biofuel policy and acreage constraints, seasonal harvest flows and large carryouts will likely cap rallies through Q3 unless crop stress returns.

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