Oil traders increase bets on U.S.-Iran deal as diesel margins hit record highs and Hormuz supply outlook worsens

Oil traders are doubling down on bets that a new U.S.-Iran agreement will reopen the Strait of Hormuz—but the market conditions surrounding any potential deal look far more treacherous now than they did during the June 17 ceasefire.

With crude inventories inside the Gulf significantly depleted, diesel margins at record highs, and Houthi forces blocking Saudi Red Sea exports, the supply recovery traders are pricing in may prove far harder to deliver than it did two months ago.

Traders bet on a deal despite worsening odds

The push to price in a new U.S.-Iran agreement makes political sense. Gulf producers have endured more than five months of severe disruption, and crude exports through Hormuz were running at roughly one-fifth of pre-war levels as of July. That kind of revenue loss concentrates minds fast. Gulf states are believed to be pressing President Trump directly, and he’s facing mounting domestic criticism over the conflict with midterms approaching.

But analysts caution that conditions today are materially different from June, when a deal translated quickly into a large and rapid supply release.

The terms of any deal look messier than in June, though. That ceasefire deliberately left Hormuz’s future status unresolved. Any new arrangement is widely expected to grant Tehran at least some influence over shipping—a concession the U.S. and its regional allies have historically refused. That’s a significant shift. If you’re betting on a full, unfettered reopening of the strait, you may be working from an outdated playbook.

Why the supply backdrop is far tighter than in June

The June ceasefire delivered a genuine supply surge. Nearly 150 million barrels had piled up on tankers trapped inside the Gulf, and once the agreement landed, roughly 70 million barrels of crude and refined products flooded out within a month, according to Kpler data. That wave calmed shortage fears and gave Asian importers—the hardest-hit buyers—real relief.

That buffer no longer exists. Only around 80 million barrels remain stored inside the Gulf today, so any supply release following a new deal would be considerably smaller. The market already knows it.

The Brent futures curve spells this out clearly. After the June ceasefire, the prompt contract briefly slipped into contango—a small discount to the next month—signaling a near-term oversupply. Today it looks nothing like that. October Brent trades at a $1.50 per barrel premium to November. That’s backwardation, and it signals immediate tightness, not a coming glut.

Keshav Lohiya, CEO and founder of HiLo Analytics, put it plainly: even as the risk premium has partially unwound in recent days, physical tightness in the Brent structure persists. The market isn’t behaving like one expecting a flood.

Diesel margins reach record levels amid refining strain

Crude availability is only part of the problem. The prolonged Hormuz disruption has forced consumers worldwide to draw down fuel stockpiles during peak Northern Hemisphere summer demand—exactly the wrong time to be depleting buffers that were already thin heading into June.

Diesel has taken the worst of it. Middle East supply disruptions curtailed exports for months. Then in July, Russia—one of the world’s largest diesel suppliers—shocked markets by banning exports after Ukrainian drone attacks severely damaged its refining infrastructure. The combined effect was dramatic: diesel refining margins hit an all-time high of $75 per barrel on July 31. They’ve since eased to around $63, but that’s still more than 50% above mid-June levels. These aren’t marginal moves.

Here’s what that means for any Hormuz deal: a reopening would improve crude flows, but it wouldn’t quickly fix diesel. The fuel that powers freight, manufacturing, and agriculture takes time to work through the refining chain. Expecting a deal to solve the fuel crunch immediately is likely to end in disappointment.

The Houthi blockade opens a second energy chokepoint in the Red Sea

In June, traders had one chokepoint to watch. Now there are two.

After Hormuz was nearly shuttered at the start of the conflict, Saudi Arabia leaned heavily on Red Sea export routes to keep oil moving—managing to ship more than 4 million barrels per day through the Red Sea, around 60% of its pre-war flows, even as Hormuz was largely closed. That alternative kept the disruption from getting even worse.

Last month, Yemen’s Iran-backed Houthis declared a blockade on Saudi Red Sea exports. Combined with attacks on Saudi infrastructure, those flows have been significantly disrupted. The alternative route is no longer reliable.

Whether the Houthis would lift their blockade as part of a broader Iran agreement remains an open question. Even if they agreed to do so, the threat of reinstatement would hang over the region indefinitely—constraining U.S. negotiators and adding a layer of risk that simply wasn’t present two months ago.

What traders need to understand going into any deal

Here’s where things stand. Crude inventories inside the Gulf are roughly half what they were before the June ceasefire, limiting any post-deal supply surge. Diesel margins are at record highs and won’t recover quickly even if crude flows improve. The Red Sea—the main alternative export route—is now also under threat, and any new Hormuz arrangement is likely to leave Iran with more influence over the strait than before.

Markets may welcome any agreement that reduces immediate risk, and that reaction would be understandable. But analysts caution that conditions today are materially different from June, when a deal translated quickly into a large and rapid supply release. Pricing in a repeat of that outcome means underestimating how much the landscape has shifted since then.

Kelly Lippke

Kelly is an experienced writer with 15 years of experience exploring the big stories that shape our world, from tech breakthroughs and space exploration to climate, energy, and the fascinating quirks of science. She has a talent for turning complex ideas into sharp, memorable insights that stay with readers long after they’ve finished reading.