Global energy markets may take as many as four months to rebalance, with gasoline and diesel inventories still constrained by shipping worries in the Strait of Hormuz, TotalEnergies SE Chief Executive Patrick Pouyanné said. The warning highlights the complex dynamics facing the oil sector, where tight product supplies contrast with a growing surplus of crude oil that producers are discounting heavily to move.

Pouyanné noted a lack of oil products, specifically petrol and diesel, stating that stocks are quite low and prices remain elevated at an equivalent of $85 to $90 a barrel. This scarcity in refined products comes even as Middle Eastern producers have built up large inventories of crude oil. Desperate to sell these stockpiles amid difficulties getting tankers through the Strait of Hormuz, producers are offering heavy discounts, causing crude prices to collapse to multi-month lows.

Shipping Traffic and Discounts

Despite the turmoil, shipping volumes have begun to stabilize under US-assisted transits, according to the Joint Maritime Information Center (JMIC). Around 34 commodity vessels have crossed the strait daily on average since Monday. Between June 30 and July 1, 65 ships crossed along the Omani side, with 59 supported by the US. JMIC warned that Iranian intent to conduct disruption persists, advising mariners to expect continued naval presence and congestion.

The pricing impact is visible in specific grades. Kuwaiti crude prices dropped by $3.32 to $68.61 per barrel on Thursday, compared with $71.98 per barrel the previous day, Kuwait Petroleum Corporation (KPC) reported. Brent crude futures rose 0.19% to $71.94 a barrel, while US West Texas Intermediate (WTI) crude edged up 0.13% to $68.78.

Diplomatic and Market Outlook

Diplomatic efforts between the US and Iran continue to shape investor sentiment, with markets looking to negotiations to stabilize flows. Citi analysts noted that expectations for a full reopening are supported by ongoing talks, though disputes over tolls and governance remain sticking points. Investors are balancing optimism over negotiations with rising Middle East supplies and persistent demand concerns.

Pouyanné said he does not expect hostilities to resume, reinforcing hopes for a gradual normalization of flows. However, he cautioned that the consequences of the situation are complex, with unexpected developments continuing to unfold.

Benchmark crude has slipped below levels seen before the outbreak of the Iran war, masking a tightening physical market characterized by evaporating inventories and a looming supply shock. Net speculative length has collapsed from 511 million barrels to 162 million, a retreat to positioning last seen before the latest supply scare, according to Eric Nuttall, a Senior PM at Ninepoint Partners. Despite the bearish price action, the market has shifted from a 177-million-barrel surplus to a 141-million-barrel deficit relative to the 5-year average, with floating storage fully absorbed.

Domestic commercial crude inventories are near their lowest levels since at least 2016, and the Strategic Petroleum Reserve is at its lowest level since 1983. This tightness suggests that recent price weakness may be temporary rather than indicative of a structural surplus.

Demand and Supply Dynamics

China accounted for 74% of the worldwide decline in crude imports by May, according to Ken Chao, CIO of YCC Capital. Data for June shows Chinese oil imports were down 4.9 million barrels per day year over year. However, downstream indicators such as US crack spreads—hovering around $57 a barrel near the $59 record—along with mobility data and refinery margins, point to resilient demand.

"You cannot drop your imports by 5 million barrels per day when your domestic demand remains very strong," Nuttall said. "And so, the thought is that they’ve been depleting invisible stocks of refined product… eventually they will have to come back to the market."

On the supply side, restoring production after shutdowns is difficult due to the need for pressure management, infrastructure repairs, and time. Extended shutdowns can permanently damage reservoir performance. Nuttall estimates that about 9.4 million barrels a day of Middle Eastern production remains shut in or curtailed.

Long-Term Investment Risks

Veteran investor Rick Rule warns that producers have been underinvesting in sustaining capital by a billion dollars a day, a mismatch that could drive future prices. Rule believes the market is overlooking the 2029–2030 setup, focusing instead on recent chart performance. "We’re going to have a spectacular buying opportunity," he said.

Potential beneficiaries include industry leaders such as Schlumberger and Halliburton, as well as the VanEck Oil Services ETF. "It isn’t just the repair of the stuff that’s been blown up. It’s the fact that in the early part of the decade of the 2030s, we’re going to need to make up for that deferred sustaining capital investment," Rule concluded.