Hormuz reopening imminent, Asian refineries scramble to "clear inventories"

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East Asian refiners are accelerating the sell-off of their fuel inventories in the market, seeking to gain an advantage before the reopening of the Strait of Hormuz and the influx of supply from the Gulf region. This move signals that Asian refined oil prices will come under pressure and decline.

According to Bloomberg, at least two Asian refiners—including a South Korean refiner—significantly increased their offers of spot distillates over the past week, covering diesel and jet fuel. Traders say this move is a continuation of the trend of the past month, as some Asian countries have high inventories, driving an increased willingness to export.

Traders point out that Asian suppliers are accelerating shipments to lock in sales before the release of a large backlog of goods from the Gulf region. These offers are made through private negotiations and tenders, which will put downward pressure on Asian refined oil prices, causing them to retreat from recent highs, though still above pre-war levels.

Loosening of wartime controls quietly opens export window

Since the outbreak of the Iran war at the end of February this year, major Asian refined oil exporting countries such as Japan and South Korea have sharply reduced external sales for energy security reasons.

Now, as the situation takes a turn, some refiners have begun reassessing their export strategies.

Market signals have already reflected this. Asian diesel (gasoil) spot prices started trading at a discount earlier this week; GS Caltex's July diesel sold at a discount of 40 to 50 cents per barrel, whereas this variety had previously maintained a premium, indicating an initial trend of weakening prices.

Gulf supply disruption has far-reaching effects, reopening expectations dominate market

The blockade of the Strait of Hormuz caused severe disruption to global refined oil trade. According to Kpler data, Middle Eastern fuel exports sharply contracted after the strait was closed, as large Persian Gulf refineries are globally important bases for refined oil exports.

Kpler previously estimated that the Iran war put about 10% of global diesel trade and 20% of global jet fuel trade at risk of supply disruption. With the US-Iran agreement taking effect, the market focus has shifted to when the Strait of Hormuz will resume navigation, and the extent of the impact that the concentrated release of backlog goods will have on the global refined oil market.

The current preemptive shipments by East Asian refiners are a direct response to this expectation—to lock in as much sales as possible at relatively high prices before Gulf supplies return to the market and prices come under pressure.

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