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Also quelling demand is China’s pivot toward producing chemicals from raw materials like coal instead of oil, according to analysts. Booming domestic sales of electric vehicles is also curbing gasoline consumption.

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The country’s refinery throughput in May and June is seen languishing at around 13 million barrels a day, a monthly run rate last seen during the early stages of the pandemic in 2020, according to estimates by Kpler and Energy Aspects Ltd. Throughput averaged 14.8 million barrels a day last year.

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“China’s backing off from the crude market has played a crucial role in attempting to rebalance the global market, which has helped cap oil prices,” said Warren Patterson, the head of commodities strategy for ING Groep NV in Singapore. “The extent of which has taken most of the market by surprise.”

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Hormuz Flows 

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Persian Gulf oil producers had workarounds that quickly saved the market in the early days of the war. Saudi Arabia’s East-West pipeline shipped millions of barrels a day to the Red Sea, while the United Arab Emirates has been piping barrels to the port of Fujairah outside the gulf. 

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There’s also been a trickle of vessels willing to transit the strait, either as part of government-to-government deals, risk-taking enterprise or, more recently, with help from the US. 

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Still, transits have plunged to two or three every day compared to nearly 100 prior to the conflict, according to shipping tracking data. Visibility on commercial shipping through the waterway is limited by ongoing GPS jamming and tracking disruptions.

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An official familiar with US Central Command operations put the count much higher at nearly 1,000 commercial vessels crossing in and out of the Strait of Hormuz in the last two months, according to a Bloomberg report Friday.

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“As a bare minimum of what counts as a ‘meaningful recovery’ I think that we would need to see a full week averaging 20 ships per day — and that’s not realistic until there is a durable US-Iran settlement, which keeps getting pushed out,” said Pavel Molchanov, an analyst at Raymond James.

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Another factor keeping a lid on prices has been Trump’s relentless jawboning, making it hard for even the most bullish traders to hold long positions for prolonged periods of time. 

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Open interest in Brent crude futures is the lowest since August as elevated market volatility forces traders to roll back risk exposure. Steep price drops on the prospect of peace have pushed many oil bulls to the sidelines, leaving them to hold small positions for very limited periods of time, several traders said. 

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The lack of risk-taking has helped keep a lid on financial flows, while supply levers have averted the worst hit to the market. The question now, is whether that can last without a peace deal. 

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“It’s basically this anticipation that there’s a solution just around the corner,” Tom Baker, head of Vitol Bahrain, a unit of the world’s top independent oil trader, said at a conference this week. But no matter how quickly production is restored, “you’re still left with a hole — whatever you want to call it — a billion barrels of oil that is missing.”

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—With assistance from Christopher Charleston, Lucia Kassai, Sarah Chen, Archie Hunter, Julian Lee and Jennifer A. Dlouhy.

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