Physical crude oil markets across the world have slipped deeper into discount territory as a flood of additional Middle Eastern supply weighs on prices, reshaping trade flows and highlighting growing concerns about oversupply.
The decline follows a 60-day interim agreement between the United States and Iran aimed at ending a conflict that erupted in late February. The deal has eased disruptions in the Strait of Hormuz, a vital shipping route that previously handled about one-fifth of global oil and liquefied natural gas shipments before the outbreak of hostilities.
The agreement has also paved the way for higher Iranian oil exports after Washington temporarily relaxed sanctions. Tehran is now seeking to expand sales beyond its traditional Chinese market, adding fresh barrels to an already well-supplied global market.
Additional pressure has come from the release of cargoes stranded in the Gulf during the conflict and a wave of spot crude sales from major regional producers, including Abu Dhabi National Oil Company (ADNOC), Kuwait Petroleum Corporation and Iraq’s State Oil Marketing Organization (SOMO).
The surge in prompt supply has pushed key Middle Eastern crude benchmarks into discounts, reflecting ample availability and weaker demand from refiners.
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“Refineries in the East have already been well supplied for the next two months and have no need for the incremental barrels, leading to a very weak market and Dubai spreads in contango,” said June Goh, senior oil market analyst at Sparta Commodities.
Cash Dubai crude fell to a discount of 27 cents per barrel on Tuesday after reaching more than $60 per barrel in March. Oman crude traded at a discount of 96 cents per barrel, while Murban crude was discounted by 67 cents per barrel, according to market data.
In a contango market, prompt cargoes trade below later-dated supplies, typically indicating that oil is readily available.
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ADNOC alone has sold at least 48 million barrels of spot crude this month for loading between June and August, significantly increasing regional supply.
The collapse in Middle Eastern crude prices has also altered trade patterns. Gulf crude has become cheaper relative to Brent, encouraging major energy companies including Exxon Mobil, Eni and TotalEnergies to ship grades such as Murban and Upper Zakum to Europe.
At the same time, weaker Middle Eastern prices have effectively closed the arbitrage opportunity for Atlantic Basin crude exports to Asia.
Spot differentials for U.S. West Texas Intermediate Midland crude have swung from a premium a week ago to a discount of about 45 cents per barrel.
“We’re expecting U.S. crude export premiums to Asia to erode and Atlantic Basin differentials to soften as the weeks progress,” said Janiv Shah, an analyst at Rystad Energy.
U.S. crude exports to Asia are expected to slow in the third quarter after reaching a record 2.63 million barrels per day in May, according to ship-tracking data from Kpler.
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The impact of the Middle Eastern supply surge is also being felt in Europe and West Africa, where discounts have widened sharply.
North Sea Forties crude, one of the grades used to determine the dated Brent benchmark, traded on Monday at a discount of $1 per barrel to dated Brent. The level marked its weakest position since November and a dramatic reversal from the record premium of $21.50 per barrel seen in April.
“Europe is becoming the clearing point for crude that either lost its eastern outlet or now screens cheap enough to travel west,” analysts at Kpler said in a market note.
West African producers have also faced growing pressure.
Traders reported that Eni sold an August-loading cargo of Angola’s Nemba crude to Glencore at $7.95 per barrel below dated Brent. Exxon Mobil was also offering an August cargo of Angola’s Hungo crude at a discount of US$4.05 per barrel.
Meanwhile, pricing agency S&P Global Commodity Insights assessed Congolese Djeno crude at a discount of US$10.80 per barrel to dated Brent on Tuesday, the weakest level recorded since its price assessments began in 2013.
The widening discounts underscore how rapidly global oil markets have shifted from fears of supply disruption during the Middle East conflict to concerns about a growing glut of crude, with traders now searching for buyers as additional barrels continue to enter the market.
