It’s now been more than three months since the waterway was effectively blocked, creating the worst supply shock in modern history. But a slew of workarounds is keeping crude oil below $100 a barrel, defying many of the industry’s grimmest forecasts for prices as high as $200.

A combination of record US exports, a sharp and unexpected slowdown in Chinese demand and a steady trickle of crude still finding its way through the strait has helped absorb much of the shock from the loss of more than 10 million barrels a day of Middle Eastern supply. A pre-war surplus has also eased the blow.  

“People thought it was going to be a lot worse,” President Donald Trump said Friday. “Today I looked at $96 a barrel, people thought that was going to be $300 a barrel.”

All eyes now are on how long those buffers can hold, while the question of when flows might resume through the strait, and where oil prices are headed, have become the biggest wild cards for the global economy.

One of the biggest surprises for the oil market has been China, the world’s largest importer. It slashed inbound shipments by almost 40% in May compared to last year’s average, according to Vortexa Ltd. The reduction is enough to offset anywhere between a third and a fifth of the barrels lost to the war, depending on the estimates used.

At the same time, the US has emerged as the world’s most important swing supplier since launching strikes on Iran in late February. American crude and fuel exports in May were more than 2 million barrels a day higher than the average for all of last year.

Other emergency measures have also eased the strain. Governments around the globe coordinated a historic release of strategic reserves, while Gulf producers rerouted shipments through alternative export routes. Some tankers continued moving cargoes via the strait despite the risks, using increasingly opaque methods to avoid military threats. 

“Over three months into this conflict, the world has proven surprisingly resilient,” Maria Angelicoussis, chief executive officer of Angelicoussis Group, the largest Greek shipowner by number of vessels on the water, said in rare public remarks this week. “Commodity prices are up by 50% or 60%, Asian LNG prices by 90%, but they’re not at the sky-high levels that at least I would have personally expected.”

For now, oil trading well below $200 a barrel, a level many analysts initially feared, has left Trump wiggle room in negotiations with Iran, even as he repeatedly insists a peace deal is within reach. But a renewed and sustained price spike would add more pressure on the White House to strike a deal quickly to stem a hit to the global economy. 

Global inventories are drawing down at a record pace, leaving the market increasingly vulnerable to fresh disruptions. With spare supplies dwindling, even relatively small outages could trigger violent price spikes. 

“Each week that goes by, the system is tightening by 70 to 80 million barrels. You can’t do that forever,” said Greg Sharenow, who helps manage nearly $24 billion as head of Pacific Investment Management Co.’s commodity portfolio investment team. “Over the course of the next few months, generously speaking, you’ll really be staring at a system that could be lacking flexibility because the buffers have been really depleted.”

American Boomtimes

US oil production has boomed to record highs in recent years thanks to the shale revolution that began over a decade ago, turning the country into a net exporter of crude and refined product.

The abundance of domestic energy has allowed President Trump to make geopolitical decisions and moves that would’ve once been considered unthinkable — not just starting a war against Iran, but also the seizure of Venezuelan President Nicolas Maduro.

Washington has also used its energy muscle to help stabilize markets. The Trump administration pledged to release 172 million barrels from the Strategic Petroleum Reserve as part of a broader effort by advanced economies to help offset lost supplies. So far it has done so at a rate few thought possible — in one week last month the stockpile declined by 1.4 million barrels a day. Nearly half of the barrels released so far have sailed to Europe and other overseas destinations.

The twin forces of US exports and depressed Chinese buying are in part why the world’s most important physical crude price, Dated Brent, has retreated below $100 a barrel after surging to a record above $140 a barrel in the early phase of the war. The most recent expiry period — the vital window in which real-world and futures prices converge — showed little indication of a supply shortage. 

Now, however, the limits of some of the workarounds are coming into focus. Overall oil inventories in the US shrank to the lowest level in more than two decades last week. Emergency reserves have little oil to spare and fuel stockpiles are facing critical lows as peak summer demand months approach.

“We’re not capable of sustaining these exports,” said Pimco’s Sharenow, adding that inventories at the critical storage hub in Cushing, Oklahoma, are approaching operational lows.    

At the same time, domestic refiners are running their plants harder than usual to meet fuel demand and competing for barrels, sending the premiums for US crude delivered in Asia higher relative to available Middle Eastern supplies, according to traders.

The Trump administration has made other strategic moves to help stabilize markets. Notable among those has been a waiver for some sanctioned Russian oil, making it easier for Indian processors, in particular, to boost purchases. 

Russian flows to India, the world’s third biggest importer of crude, averaged about 1.76 million barrels a day in May, 63% higher than in February.

China’s Return

Many traders see China’s eventual return to pre-Iran war oil purchasing rates as the key to predicting when oil prices finally lurch higher.

The voracious appetite of the world’s largest crude importer — over 10 million barrels a day since the start of the war in Ukraine — has been curbed for now. That drop-off has come in part as the nation stopped growing its giant strategic stockpile, which has ballooned in recent years.

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.

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.

“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.”

Hormuz Flows 

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. 

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. 

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.

Read More: Mercuria Lawyers Say Government Deals Got Oil Through Hormuz

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.

“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.

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. 

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. 

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. 

“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.”