Strait of Hormuz Oil Flows Drop as War Reignites

Crude oil is climbing again as the Strait of Hormuz oil trade buckles under renewed US-Iran hostilities, with United States Oil Fund (USO) shares up 0.9% to $121.38, well within their 52-week range of $102.42 to $154.08.

Hormuz Flows Collapse After Ceasefire Falters

The brief thaw that followed the June 17 memorandum of understanding between Washington and Tehran had allowed tanker traffic through the strait to rebuild toward roughly 50% of pre war volumes, with broader Persian Gulf loadings nearing 80% of normal. That recovery has now reversed sharply. Goldman Sachs strategists led by Daan Struyven estimate that flows, which had climbed back to about 10 million barrels a day in early July, slid to just 3 million to 5 million barrels a day by July 15. The bank now pegs the market as short roughly 13.4 million barrels a day of Gulf crude relative to pre war norms, a gap that dwarfs anything seen during the initial phase of the conflict.

Rystad Energy's Lu Ming Pang framed the reversal bluntly: markets had priced in normalization after the June truce, and that simply failed to happen once fighting resumed. The strait, which historically carries about a fifth of global oil trade, or roughly 20 million barrels a day of products with three quarters of that as crude, is now operating far below capacity for a second time in a matter of months.

Price Action Reflects Renewed Risk Premium

Brent crude futures have gained more than 8% over five trading sessions to trade above $84 a barrel, while WTI futures have risen a similar amount to clear $79. That repricing shows up clearly in the USO tape, where the RSI of 56.26 signals momentum that has turned constructive without yet reaching overbought territory. USO's position roughly in the middle third of its 52-week band suggests the market is still working out how durable this supply shock will prove, rather than pricing in a full-blown crisis scenario.

The proximate trigger is a fresh round of US strikes on Iranian military targets, confirmed by Central Command on Wednesday and explicitly framed as an effort to degrade Iran's capacity to threaten shipping through the strait. It marks the fifth consecutive day of US action in the region, with Iran retaliating against American installations across the Gulf. A second US naval blockade, initiated at 4 p.m. ET Tuesday, has already diverted two commercial vessels attempting transit, according to Central Command.

Inventory Buffers Are Thinner This Time

Goldman's team cautions that any recovery in flows will likely take longer than the rebound seen after the initial conflict phase. With fewer barrels in storage to draw on globally, restoring balance may require either demand destruction or a renewed drawdown of inventories, neither of which happens instantly. Shipping companies remain wary of routing tankers through Omani waters despite White House assurances that the lane remains navigable, a disconnect that itself constrains effective throughput even when physical passage is technically possible.

China's role as a shock absorber adds another layer of uncertainty. Beijing had cut crude imports by roughly 5 million barrels a day during the first phase of the war, effectively cushioning global prices. Whether that restraint holds is now an open question, particularly if Gulf producers cut prices to defend market share and Chinese planners reassess how much they want to keep in strategic reserves. Pang's view is that as confidence in the strait's security erodes further, the market will need to start pricing in the possibility of a supply disruption that lasts well beyond a matter of weeks.

What the Numbers Say for USO

USO's 0.9% daily gain to $121.38 leaves it roughly 21% below its 52-week high of $154.08 and about 19% above its 52-week low of $102.42, a positioning that reflects a market still digesting how much of the Hormuz disruption is structural versus transient. An RSI near 56 is neutral to mildly bullish, consistent with a fund riding a genuine supply shock rather than a speculative spike. The bull case rests on the scale of the shortfall Goldman describes, a 13.4 million barrel a day gap that has no obvious near term substitute given OPEC spare capacity constraints and the risk that China resumes normal import volumes. The bear case centers on the same inventory dynamics Goldman flags: thinner global stocks mean any diplomatic breakthrough or demand pullback could unwind gains quickly, and traders have already seen once, after the June MOU, how fast sentiment can reverse when a ceasefire proves temporary.

Frequently Asked Questions

Does the Strait of Hormuz have oil?

The strait itself does not hold oil reserves, but it is the primary maritime corridor through which crude and other oil products from Gulf producers reach global markets.

Does the Strait of Hormuz produce oil?

No, the strait is a shipping chokepoint rather than a production site. Oil is produced onshore and offshore in Gulf states such as Saudi Arabia, Iraq, the UAE, Kuwait and Iran, then transported by tanker through the strait, which normally carries about a fifth of global oil trade.