The good news arrived this week: Iran and the United States have signed a memorandum of understanding, reopening the Strait of Hormuz after nearly four months of war-driven closure. The bad news is that the world may have waited too long for it to matter.
According to analytics firm Kpler, the global oil market lost a staggering 1.15 billion barrels of supply during the conflict. The damage to inventories has been severe. The International Energy Agency's strategic petroleum reserves sit at their lowest levels since 1990. America's emergency reserve is at a 43-year low. Commercial storage facilities, including the critical hub in Cushing, Oklahoma, have hit what analysts call "operational stress levels", the point at which oil becomes difficult to extract efficiently from tanks.
"You want to see bedlam?" US President Trump said at the G7 summit in Versailles this week. "We run out of reserves in about four weeks."
Brent crude has fallen sharply on the news, dropping from a wartime peak of $126.41 to below $80 a barrel. But several analysts warn the market is celebrating prematurely. Reopening the strait does not instantly restore the flow of oil, tankers must return, the strait may need de-mining, and production must restart before crude begins its journey to market. Industry experts believe that process could take months.
"The market has jumped seven steps ahead of where we are now," said Helima Croft of RBC Capital Markets. "There's a major logistical challenge to get back to where we were."
Even under optimistic supply-growth projections from the IEA, replacing the lost 1.15 billion barrels could take roughly a year.
Not everyone is alarmed. Macquarie's Vikas Dwivedi argues current inventory levels, while reduced, remain manageable compared to historical averages.
For now, relief and risk are arriving in the same week, and which one wins out will shape oil prices through the summer.
