Crude Oil Premiums Drop After Hormuz Closure Spikes

Spot premiums for physical crude oil have declined from record highs following a supply shock triggered by the near-total closure of the Strait of Hormuz. The closure resulted from a war on Iran involving the United States and Israel that began on February 28, which eliminated approximately 500 million barrels of crude and refined products output.

While the conflict initially caused prices to spike due to panic buying, the sustained high costs eventually suppressed consumer and refiner demand. To address a 15-million-barrel-per-day supply deficit, refiners reduced processing and increased the use of previously sanctioned barrels.

Market stability improved as Chinese state-owned firms, including Sinopec, PetroChina, and CNOOC, tapped commercial reserves and sold spot market crude. These actions contributed to the easing of premiums for oil barrels sourced from the United States, Brazil, Africa, and Canada, including Canadian crude exported via the Trans Mountain pipeline.