Buyers seeking substitutes for Persian Gulf supplies during the Iran war drove premiums for US crude grades sharply higher. Now, with the Strait of Hormuz flowing again and Asian demand fading, those premiums have vanished.
In late March, during the peak of the Iran war, Mars had reached an $18 premium over futures.
Magellan East Houston (MEH) grade, another key US benchmark, traded at almost $8 more than futures prices during the war peak. That premium has now disappeared as well. According to Sparta Commodities' research head Neil Crosby, "Practically the whole market is getting weaker."
The war had trapped Persian Gulf oil behind the conflict. Buyers turned to US grades. Now, more crude is flowing through the Strait of Hormuz again.
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Asian buyers are reducing US imports. The shift is driven by rising freight expenses and an increasing surplus of crude from the Persian Gulf region. A number of Asian refinery operators are now attempting to offload that Persian Gulf crude back to American buyers. Crosby added: "WTI and other US grades' export arbs are no longer looking particularly great, both due to physical weakness in competitor crudes from other regions, but also due to the narrow WTI/Brent spread."
The US government continues to release crude from its strategic reserve. It plans to release all 172 million barrels from the emergency reserve and is still doing so even as oil prices fall. Meanwhile, crude stockpiles at the Cushing, Oklahoma storage hub rose for the first time in 10 weeks. But at below 20 million barrels, they remain unusually low.
Total US commercial petroleum stockpiles are at their lowest level since March 2025.
The dramatic swing from war-driven premiums to discounts reflects a rapid shift in global oil dynamics. With Asian demand weakening and Persian Gulf flows resuming, the temporary advantage US grades enjoyed has reversed. The recent decline in US crude exports, from a peak of near 6.5 million barrels per day in late April to just over 4 million barrels per day, underscores the loss of international buyers.
These factors combine to create an unusual environment where US crude is now selling at a discount despite historically low total stockpiles.
Investors are bracing for a potential oversupply in the near term. According to traders, replenishing the strategic reserve could be a lengthy process. But the main factor behind the recent stockpile declines - American crude exports - has already fallen back to where it stood before the conflict. The war-era premium is gone, and the market now faces an increasing surplus of crude from the Persian Gulf region.
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