Persian Gulf oil flows recover as the market prices in future oversupply ahead of time

Overview

This is an Oil Tracker data-tracking report from Goldman Sachs commodity research, focusing on the rapid recovery of Persian Gulf and Hormuz-related oil flows after the disruption and how the market is extrapolating that recovery into future oversupply and lower oil prices. The report notes that Brent futures prices fell 8% in one week, and the market may already be pricing in the rapid recovery of Middle East supply, the U.S. waiver for Iranian oil sales, lower crude positioning, and a decline in the security premium.

Core views

The report’s core views are: first, Middle East supply is recovering faster than the market had previously feared, with total Persian Gulf exports back to 63% of normal levels and visible Hormuz flows showing clear improvement; second, the waiver for Iranian oil sales could release around 60 million barrels of crude at sea, but given the existing sanctions environment and historical production elasticity, Goldman does not expect a substantial increase in Iranian production; third, the pace of global visible inventory draws has slowed significantly, with crude at sea rising by 137 million barrels since late March, offsetting nearly 60% of the initial decline; fourth, weak Asian demand—especially softer Chinese imports—and rising EV penetration may cause more persistent demand losses; fifth, the market is reducing the security premium embedded in long-term oil prices and raising the probability assigned to a Brent downside scenario of around $60/bbl in December 2026.

Analysis framework

The report uses cross-validation with high-frequency data on oil flows, tankers, inventories, imports and exports, term structure, and regional prices: supply recovery is assessed through Persian Gulf exports and visible Hormuz flows; transport constraints are evaluated through inbound ballast tanker volumes and loaded departures; inventory trends are judged through global visible inventories and crude at sea; demand-side damage is observed through Chinese imports and EV penetration; and market-structure indicators such as Dubai prompt timespreads and Brent physical-financial differentials are used to track how prices are preemptively reflecting future oversupply.

Methodology notes

• High-frequency supply-demand trackingOil Tracker

  Tracking crude market balance through oil flows, tankers, inventories, and price structure

  The report combines Persian Gulf exports, Hormuz flows, ballast tankers, global visible inventories, crude at sea, regional prices, and futures term structure to assess short-term supply recovery, demand changes, and market pricing.

• Market structure analysistimespread and basis analysis

  Identifying supply-demand tightness through near-month spreads and spot basis

  Dubai prompt timespreads turning into contango and Brent physical contracts trading at a discount to financial contracts are used to show that expectations for high supply and future oversupply are strengthening.

• Scenario analysisdownside oil price scenario

  Brent downside scenario

  The report mentions that the market may be assigning a higher probability to a downside oil price scenario, which includes Brent at around $60/bbl in December 2026.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Brent crude

  Core pricing benchmark

  Strengths

  Still supported by geopolitical risks and supply disruption risks; tightness in the U.S. market provides some support.

  Weaknesses

  The market is already pricing in future oversupply and a decline in the security premium; the report mentions a Brent downside scenario of around $60/bbl.

  Comparison

  Compared with the tightness in the U.S. oil market, global supply recovery and demand impairment create more obvious pressure on Brent.

  Risks

  If Middle East conflict escalates again or Hormuz flows are disrupted once more, Brent could regain a risk premium.

• Dubai crude

  Middle East crude market structure indicator

  Strengths

  Can reflect changes in crude supply and demand in Asia and the Middle East.

  Weaknesses

  Dubai prompt timespreads have turned into contango, indicating stronger expectations for high supply.

  Comparison

  Similar to Brent, Dubai market structure is also reflecting supply recovery and future oversupply.

  Risks

  If Asian demand rebounds or Middle East exports are constrained again, contango could narrow or reverse.

• Iranian crude

  Potential source of additional supply

  Strengths

  The 60-day sales waiver could release around 60 million barrels of crude at sea, and Asia and China may still be the main buyers.

  Weaknesses

  Broad EU and UK sanctions on Iranian oil and vessels remain in place, and Goldman does not expect a substantial increase in Iranian production.

  Comparison

  Compared with other Middle East supply recovery, Iran is more about the release of offshore inventories than a clear jump in production.

  Risks

  The pace of release could be affected by waiver expiration, changes in sanctions enforcement, or insufficient buyer intake capacity.

• US oil market

  Reference market for supply-demand tightness

  Strengths

  U.S. crude exports hit a record high, total oil product inventories fell to the lowest since 1984, and Cushing inventories are below 19mb.

  Weaknesses

  If global oversupply intensifies, U.S. tightness may not be enough to support global oil prices.

  Comparison

  Unlike the U.S. inventory build in March, the U.S. market is currently tighter, but global supply recovery still dominates pricing.

  Risks

  Further inventory declines could widen regional spreads and limit oil price downside.

• Refined products

  Demand and inventory observation target

  Strengths

  U.S. wholesale gasoline prices continue to outperform regional peers due to strong summer demand and low inventories.

  Weaknesses

  Global crude/condensate imports are down 5.9mb/d versus the 2025 average, and refined product imports are down 4.6mb/d, showing demand-side pressure.

  Comparison

  Gasoline and diesel inventory trends are diverging, with high-frequency visible diesel inventories above last year’s levels and gasoline inventories below last year’s levels.

  Risks

  Seasonal demand, refinery operations, and regional inventory differences could cause refined product prices to diverge from crude prices.

Key data

• Weekly change in spot Brent futures-8%Driven by progress in U.S.-Iran negotiations, the recovery of Persian Gulf oil flows, waivers for Iranian oil sales, and lower crude positioning.
• Recovery ratio of total Persian Gulf exports63% of normal levelsMeasured on a 7-day moving average, reflecting the rapid recovery in visible Hormuz flows.
• Ballast tankers entering the Persian Gulf52mbCapacity of ballast tankers entering the Persian Gulf over the past week; loaded departures from the Persian Gulf were 53mb over the same period.
• U.S. Treasury waiver for Iranian oil sales60 daysAuthorizes Iranian oil sales, including oil transported by previously sanctioned vessels.
• Potential release of Iranian crude at seaaround 60mbThe volume of Iranian crude at sea that could be released under the waiver.
• Growth in Iranian productionUp 1.3mb/d from 2020-2025, a 59% increaseProduction still increased even during the U.S. maximum pressure sanctions period, suggesting that U.S. sanctions may not be a tight constraint on production growth.
• Pace of global visible inventory drawsJune -1.8mb/d, May -5.5mb/dThe draw pace slowed significantly due to rising crude at sea.
• Increase in global crude in transit at seaUp 137mb since late MarchOffset nearly 60% of the initial decline.
• Change in Chinese crude importsDown 4.5mb/d year over yearChinese crude imports continued to decline even as oil prices fell back.
• Change in EV penetrationUp 3.4 percentage points globally, up 11.4 percentage points in ChinaThe report believes this could reinforce demand losses, especially in Asia.
• Offset ratio of the Persian Gulf crude/condensate export shock35%Export increases from the U.S., Russia, and the Americas excluding the U.S. contributed 11 percentage points, 8 percentage points, and 5 percentage points, respectively.
• Status of U.S. oil product inventoriesTotal inventories fell to the lowest since 1984, with Cushing crude inventories below 19mbThe report also notes that the U.S. oil market remains tight, in contrast to the global supply recovery narrative.

Impact & implications

The report’s investment implication points toward lower oil prices: if Middle East supply continues to recover, Iranian crude at sea is released, non-Middle East production continues to surprise to the upside, and Asian demand damage remains sticky, the oil market will more easily shift from a supply-shock narrative to a future-oversupply narrative. The decline in the security premium affects not only spot prices but may also depress long-term oil price expectations. However, extremely low U.S. inventories and the risk of Middle East supply disruptions remain constraints on the bearish view.

Risks

• The risk of Middle East supply disruptions remains high; if Hormuz or surrounding shipping lanes are disrupted again, the oil price security premium could rise.
• The U.S. oil market remains tight, with total oil product inventories at the lowest level since 1984 and Cushing crude inventories below 19mb, which could limit oil price downside.
• Policy uncertainty after the expiration of the Iranian oil sales waiver could affect the release of crude at sea and market expectations.
• There is still uncertainty over whether demand losses in Asia will be sticky; if demand recovers faster than expected, the oversupply narrative could weaken.
• Whether non-Middle East supply continues to surprise to the upside and whether Middle East exports such as those from the UAE recover further will directly affect the scale of future oversupply.

What to watch

• Whether total Persian Gulf exports continue to recover from 63% of normal levels toward higher levels.
• Visible Hormuz flows, the share of vessels with AIS turned on, and actual transit volumes.
• Whether U.S. policy is extended before and after the expiration of the 60-day waiver for Iranian oil sales.
• The actual release pace of around 60 million barrels of Iranian crude at sea and the receiving conditions among Asian buyers.
• Whether the pace of global visible inventory draws continues to slow and whether crude at sea continues to rise.
• Whether the year-over-year decline in Chinese crude imports narrows and whether demand losses in Asia persist.
• The ongoing impact of changes in global and Chinese EV penetration on oil product demand.
• Whether Dubai prompt timespreads, Brent physical basis, and the security premium in long-dated oil prices continue to decline.
• Whether total U.S. oil product inventories and Cushing inventories tighten further.