From “flight suspension panic” to “oversupply crisis”: US-Iran agreement triggers oil price plunge of 30%, Goldman Sachs warns of nearly 2 million barrels net crude surplus next year.
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As the geopolitical tensions between the US and Iran substantially cool down, the global crude oil market is undergoing a dramatic fundamental shift from "supply panic" to a "surplus crisis".
On Wednesday, international oil prices experienced another sell-off and plunge, with both WTI crude oil and Brent crude oil futures dropping more than 1.70% at one point. Brent crude fell below the $73 mark, a sharp decline from the war-time peak of over $126.
The direct driving force behind the sharp fall in oil prices comes from the rapid cooling of geopolitical tensions in the Middle East. A White House spokesperson explicitly stated that the US and Iran have a significant chance of reaching an agreement, and delegations from both sides held indirect talks in Doha on July 1 to discuss issues such as asset unfreezing and ensuring maritime safety in the strait.
Goldman Sachs and Morgan Stanley both assert that the global oil market is about to return to a serious state of surplus supply. Even taking into account the enormous global demand to replenish strategic petroleum reserves, the average daily net surplus in the oil market next year is expected to approach 2 million barrels, putting long-term pressure on oil prices.
Progress in US-Iran agreements, Geopolitical Premium Fully Retraced
The crude oil market is rapidly stripping away the previously priced-in war premium.
According to Xinhua News Agency, sources revealed that the US and Iran held indirect talks in Doha, the capital of Qatar, on July 1, with Qatar and Pakistan serving as mediators. The talks focused on implementing the US-Iran Memorandum of Understanding, with core topics including unfreezing Iran's frozen assets and ensuring maritime security in the Strait of Hormuz.
With the conclusion of the temporary peace agreement between the US and Iran, shipping in the Strait of Hormuz—an important waterway connecting the Persian Gulf to global markets—is reviving.
Despite two recent attacks on vessels, traffic through the strait continues to increase. Meanwhile, Iran has reiterated its determination to manage maritime traffic in the channel and may act in conjunction with Oman.
Shipping Order Set to be Restored, Wall Street Turns Bearish
The smooth operation of Middle Eastern oil supply routes has directly triggered concerns among investment banks about market surplus.
Samantha Dart, co-head of global commodities research at Goldman Sachs, told Bloomberg TV that as the impact of the Iran conflict fades and traffic in the Strait of Hormuz returns to normal, the situation of oversupply in the global oil market will reemerge.
Samantha Dart highlighted that exports through the Strait of Hormuz are expected to normalize before the end of July. Once strait throughput resumes, the market will enter a surplus scenario, with the average daily oil surplus expected to slightly exceed 3 million barrels next year.
She added that, since US energy exports and Chinese imports have remained stable, the market previously did not react strongly to the strait’s short-term "disruptions," suggesting that the oil market is moving towards normalization.
Morgan Stanley's view highly aligns with Goldman Sachs, with the institution lowering its oil price forecasts twice in just over two weeks.
Morgan Stanley analysts stated bluntly in this week's report that as the market looks towards 2027, the oil market has returned to square one, once again facing supply surplus.
Strategic Reserve Replenishment Can't Stop Surplus; Transit Fees Don't Affect Energy Costs
In the first few weeks after the conflict broke out, the International Energy Agency (IEA) coordinated a release of a record 400 million barrels of emergency crude oil reserves to stabilize prices.
As part of the plan, the Trump administration used the US Strategic Petroleum Reserve (SPR). Official data show that US crude inventories dropped from 415 million barrels at the end of February to 331 million barrels by June 19, reaching the lowest level since 1983.
Although the consumed reserves urgently need to be rebuilt, this is not enough to turn around the surplus situation.
Samantha Dart estimates that the global demand for replenishing strategic petroleum reserves is expected to slightly exceed 1 million barrels per day, which will tighten the market to some extent but can only partially offset the anticipated surplus. The market will still ultimately face a net daily surplus of nearly 2 million barrels.
Regarding concerns about future shipping costs in the Strait of Hormuz, Goldman Sachs believes any material impact on global energy prices will be limited.
Asked about the proposal to levy transit fees on vessels, Samantha Dart indicated that shipping companies are currently most concerned with regulatory rule certainty.
Industry feedback shows that shipowners do not mind paying transit fees, provided the rules are clear, to avoid violating US sanctions. According to previously discussed informal standards, the fee is about $1 per barrel.
Samantha Dart noted that this cost is negligible compared to the daily price fluctuations of crude oil. From the attitude of shipping companies, whether this additional fee will significantly push up global energy costs remains unclear, and it is highly unlikely to have any fundamental impact on oil pricing.
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