Asian refineries rarely sell Middle Eastern crude oil to the US as crude oil trade flows quietly shift.

```

The reopening of the Strait of Hormuz and weak Asian demand are resonating, breaking the traditional global crude oil trade pattern and triggering a rare reconstruction of trade flows and drastic reversal of interregional price gaps.

According to Bloomberg reports on Tuesday, facing severe regional oversupply, Asian refineries are exporting UAE and other Middle Eastern crude oil in reverse to the U.S. West Coast and Hawaii to clear inventories; meanwhile, due to inverted price spreads, U.S. crude exports to Asia have plummeted by half month-on-month.

Behind this abnormal trade flow lies crude inventories in some regions of the U.S. dropping to multi-year lows, and structural changes in the price spread between WTI and Middle Eastern crude. For the oil market, this means that after geopolitical war premiums fade, regional supply-demand mismatches are becoming the new core logic for pricing and arbitrage.

As the U.S.-Iran peace agreement releases a vast supply, the oil market is quickly sliding from extreme tightness to potential oversupply. Investors need to reassess the profound impact regional inventory extremes and price spread arbitrage space will have on the global energy supply chain.

Hormuz Reopens and Demand Weakness Resonates, Asian Crude Oil Suffers Oversupply

The signing of the U.S.-Iran peace agreement and the full reopening of the Strait of Hormuz have become the fuse for this round of trade flow reconstruction. With geopolitical risk premiums completely erased, at least 20 tankers loaded with a total of 35 million barrels of crude are leaving the strait, and Persian Gulf oil producers are rapidly restoring idle capacity.

However, the influx of massive supply coincides with weakness on the demand side in Asia. As the traditional largest buyer of Middle Eastern crude, Asian refineries have already scheduled supply to August, while demand from the largest importer, China, remains absent. June Goh, Senior Oil Market Analyst at Sparta Commodities SA, points out that Asian refineries are well supplied, and the spot crude released from the Strait of Hormuz directly pushes up regional oversupply. In the absence of Chinese demand to absorb it, Asia's surplus even makes it economically viable to sell Middle Eastern crude to Western destinations.

Regional Inventories Hit Extreme Levels, Middle Eastern Crude Rarely "Reverse" Exported to U.S.

While Asia faces a crude oil surplus, crude inventories in some regions of the U.S. have fallen to historic lows, this extreme regional supply-demand mismatch providing the physical foundation for reverse trade.

Data show that the crude oil inventories on the U.S. West Coast and Hawaii have dropped to the lowest levels since 2004, and inventories at the key Cushing hub have also fallen to the lowest level since 2014. The extreme tightness in local supply has prompted Asian traders to turn their attention to the U.S.

According to sources familiar with the matter, UAE-grade crude oil is being sold to the U.S. West Coast, marking the first import of such oil to the region since the end of last year. In addition, similar crude is being offered to Hawaii, and if the deal succeeds, it will be the first batches of Middle Eastern crude shipped there since 2018.

Interregional Price Spreads Completely Reverse, U.S. Exports to Asia Halved

The deep driving force behind trade flow reconstruction lies in the complete reversal of interregional price spreads. Under the pressure of oversupply, Middle Eastern crude is at a discount in the Asian market, while the relative strength of U.S. crude weakens its competitiveness in Asia.

Currently, the landed price of WTI crude has exceeded Middle Eastern Murban crude, and this inverted price spread has directly caused U.S. crude exports to Asia to fall by half month-on-month. Asian refineries including South Korea's GS Caltex have stopped purchasing U.S. crude. Meanwhile, price structures within the U.S. have also changed, with Midland region MEH crude shifting to a premium over WTI.

This dual reversal of price spreads and trade flows indicates that the global crude oil market is undergoing deep self-correction. For market participants, traditional one-way trade logic has been broken, and the frequent switching between regional inventory extremes and interregional arbitrage windows will become an important feature of future oil market volatility and pricing.

Risk Warning and Disclaimer ClauseMarket involves risk, investment requires caution. This article does not constitute individual investment advice and does not consider the unique investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinion, viewpoint, or conclusion in this article suits their specific circumstances. Invest accordingly at your own risk. ```