Oil: Hormuz Supply Recovery Eases Risk Premium — BNY Mellon

Brent crude is currently trading near $87.49, with the continued unwinding of supply risk premiums weighing on prices. Geoff Yu, strategist at BNY Mellon, noted that improving traffic flows through the Strait of Hormuz is easing crude supply concerns and exerting downward pressure on Brent prices.

**Marginal Signals of Supply Recovery**

Kuwait and Qatar have restored crude shipments to roughly 70% of pre-war levels, boosting overall traffic through the Strait of Hormuz. As the world's most critical oil transit chokepoint, any substantial improvement in the strait's passage conditions directly erodes the geopolitical risk premium previously priced into the market. Signals from the Trump administration regarding the reopening of Hormuz, coupled with OPEC+ output increases, have further accelerated the unwinding of risk premiums.

**Divergence on Recovery Pace**

However, market views on the speed of recovery remain mixed. HSBC analysts expect oil shipments through the Strait of Hormuz will not return to normal until the end of July, with full recovery to pre-war levels by the end of September, citing hurdles such as mine clearance, insurance restoration, and vessel redeployment. Kpler analysts, meanwhile, suggest that tanker activity may first see a brief surge after reopening, with around 118 laden vessels potentially departing first, though the pace of new vessel re-entry remains a key uncertainty. Under the base-case scenario, transit volumes would gradually rise from an initial roughly 15 vessels per day to 40 by month-end.

**Institutional Views on Price Outlook**

Commerzbank expects Brent crude to remain near the high level of $85 per barrel by year-end. Compared with the current trading level of $87.49, this suggests the market may still retain some downside room, though the overall price center has yet to deviate from its elevated range. The gradual pace of supply recovery and recurring geopolitical risks remain key variables shaping the future direction of oil prices.