Oil supply glut clouds outlook, but new supply does not mean risk is over

A wave of cheap, abundant crude is reshaping the calculus for advisors tracking inflation trends and rate expectations, even as the rebuilding of depleted global oil reserves is set to stretch into 2027 and beyond.

Brent prices have slipped back below where they stood before the Iran conflict began, while tanker traffic through the Strait of Hormuz is recovering at a faster clip than many expected, the Wall Street Journal reported.

But the broader restocking of oil inventories, drawn down sharply during the four-month war, remains a multi-year undertaking, a dynamic that could keep energy markets exposed to renewed volatility even as near-term prices stay soft.

Crude touched roughly 70 dollars a barrel recently, and some forecasters see further downside. Macquarie and Citigroup both issued projections this past week putting prices as low as 60 dollars in the months ahead, according to the Journal.

OPEC and its partners voted on Sunday to lift production by 188,000 barrels a day for August, the fifth consecutive monthly hike. The United Arab Emirates, which exited OPEC in May, has ramped exports back up using a bypass pipeline that skirts the strait entirely.

Reserves drawn down, refill lagging

However, stockpiles are low with inventories among wealthy OECD economies having dropped by 163 million barrels between March and May, reaching their lowest point since December 1990.

The US Strategic Petroleum Reserve, established in 1975 in response to the Arab oil embargo, fell to its lowest level since 1983 in the week ending June 26, based on Energy Information Administration figures cited by the Journal.

China's posture adds another layer of uncertainty, having held close to 1.4 billion barrels in storage at the start of the conflict, more than the combined reserves of all 32 International Energy Agency member nations, including the roughly 413 million barrels held by the US, Reuters reported. Beijing drew on those reserves to cushion the shock but has shown little urgency to replenish them.

Iran's own leverage over oil flows has not disappeared. Fesharaki told CNBC that Tehran has signaled that current unrestricted transit through the strait will last only 60 days, after which tiered tolls could apply. "If you are my friend, you pay less. If you are not my friend, you pay more. If I don't like you, maybe I won't even let you take your oil through," Fesharaki said.

Every five dollar move in oil prices adds roughly 190 billion dollars in annual costs to the global economy, based on Reuters calculations using global demand of 104 million barrels a day, underscoring the stakes for inflation forecasts that many advisors are already factoring into client portfolios.