Oil’s Oversupply Narrative Just Died

Renewed hostilities between the United States and Iran have upended market expectations of a well-supplied oil and gas market, driving ICE Brent above US$85 per barrel and reversing weeks of oversupply sentiment into fears of a global shortage. All major crude benchmarks have shifted into steep backwardation.

The escalation, described as a July 2026 confrontation over the Strait of Hormuz, has seen US missile strikes on Iranian infrastructure met by Iranian retaliation against regional hosts of US bases. Iran has moved to close the Strait of Hormuz, while Washington is reinstating a maritime blockade of Iranian shipping through the Gulf of Oman. Two VLCC tankers chartered by Abu Dhabi's ADNOC were struck by Iranian cruise missiles while transiting the southern lane of the Strait, causing one death and lifting Gulf war-risk premiums sharply. Tehran, however, insists exports continue largely as normal, averaging around 1.35 million barrels per day so far in July.

The disruption has reshaped the gas outlook too. Analysts, including BloombergNEF, now push the anticipated LNG glut from 2026 out to 2028, citing capped Middle Eastern supply and project commissioning delays. Asian LNG demand has surged on extreme heat, with July imports set to reach 23 million tonnes and the JKM benchmark climbing to US$19.5 per MMBtu. Europe, unable to compete on price, faces imports falling to a two-year low near 6.90 million tonnes. Pakistan, meanwhile, has issued a fresh prompt tender after a Qatari LNG carrier was attacked.

Elsewhere, OPEC trimmed its 2026 demand growth forecast to 780,000 b/d, Chinese June crude imports slumped 41% year-on-year, and Nigerian output reached a six-year high. Mexico's Pacific-facing Energia Costa Azul terminal shipped its first cargo to South Korea, opening an Asia route that bypasses the Panama Canal.

For Malaysian and Southeast Asian readers, the implications are significant. Firmer crude and record JKM prices raise import costs for gas-dependent economies while improving margins for regional producers and offshore service providers. Heightened tanker war-risk premiums and threats to Hormuz transit will affect chartering, insurance and voyage planning across the region's shipping and oil and gas supply chains, even as Pacific LNG routes gain strategic value.