Oil prices fell slightly on Tuesday after Iran and Israel agreed to stop attacking each other, but behind the appearance of calm, the oil market is facing a series of contradictory forces, namely a fragile truce in the Gulf, record oil tanker orders, signs of weakening short-term demand, but also a long-term outlook for consumption that refuses to decline, according to an eToro analysis.
Crude oil futures prices retreated from early-day highs on Monday but closed slightly higher, with WTI for July delivery rising 0.8% to $91.30 a barrel and Brent for August delivery gaining 1.2% to $94.25 after Iran and Israel announced a cessation of mutual attacks following a call by US President Donald Trump.
The truce ended two straight sessions of losses, providing some relief to a market disrupted by the prolonged closure of the Strait of Hormuz, the route through which about a fifth of global seaborne crude normally passes. Prices continued their downward slide early Tuesday, with Brent futures down another 1.3% and WTI futures below $90 a barrel, the analysis showed.
“However, the price relief could be temporary. Yemen’s Houthi rebels have declared a ban on Israeli-linked ships in the Red Sea, adding fresh pressure on energy corridors. OPEC+ approved its fourth consecutive production increase in four months, but most members are unlikely to be able to meet existing quotas due to disruptions in the Strait of Hormuz or, in Russia’s case, Ukrainian drone attacks on infrastructure. Saudi Arabia has cut its official selling price to Asian buyers for the second consecutive month, signaling that physical demand is weakening,” explains eToro analyst Bogdan Maioreanu, according to Agerpres.
Despite this, an extraordinary bet has emerged in the shipping industry. According to Clarkson Research, cited by Bloomberg, 262 VLCC (Very Large Crude Carrier) supertankers, capable of carrying two million barrels each, are currently ordered at shipyards around the world, surpassing the previous record set in October 2008. This order book represents over a quarter of the existing fleet, the highest share since 2011, Maioreanu claims.
In his opinion, there are several reasons behind this increase in orders. Daily rates for oil tankers have doubled from pre-conflict levels, the combined market capitalization of the 15 largest publicly traded shipping companies has at times exceeded $60 billion—about double the level at the start of the year—and prices for second-hand VLCCs are hovering around $115 million, a high not seen since 2008.
“Buoyed by war profits, shipowners are doing what they did before, at the peak of the cycle: ordering more ships. The problem is that economic fundamentals are already changing. Analysts note that the market has absorbed the oil supply shock well, with some ships already quietly transiting the Strait of Hormuz under bilateral agreements between Gulf producers and Asian buyers. But the world’s largest tanker owners warn that a deal between the U.S. and Iran to reopen the Strait of Hormuz could turn today’s record profits in a sudden collapse in shipping rates,” the analysis reveals.
However, there is another, longer-term perspective, draws attention to Bogdan Maioreanu. According to the IEA, global oil consumption will continue to grow until 2050. In the current policy scenario, oil demand is expected to increase to 113 million barrels per day by 2050, mainly due to increased use in emerging markets and developing economies, for road transport, petrochemical feedstocks and aviation.
“And all this oil will have to be transported somehow. Massive tanker orders are trying to meet this need, but some tanker fleet owners have learned to tread carefully in a world of intense geopolitical tensions. In just a few months, the world has gone from the low oil prices of the ‘drill, baby drill’ era to extreme volatility, with peaks exceeding $120 a barrel due to the war with Iran, while, in the longer term, the industry faces challenges related to zero-emission policies and the rise of renewable energy,” he adds.