The closure of the Strait of Hormuz and the disruption of more than 10 million barrels per day of crude oil supplies from the Arabian Gulf have alerted import-dependent nations to the need for expanding their strategic and commercial storage capacity.

Many countries, particularly across the Asia-Pacific region, are seeking to build new storage facilities to strengthen energy security and avoid another major supply crisis like the one caused by the closure of one of the world's most important oil and LNG transit routes.

From India to Australia, energy importers are increasing their crude oil and fuel storage capabilities in preparation for the next energy crisis, amid an increasingly volatile geopolitical environment where disruptions are viewed as a question of "when" rather than "if."

Major oil producers are also considering expanding global storage facilities so they can continue marketing production during future disruptions that may shut down strategic trade routes.

The role of inventories in oil price movements

Before the conflict with Iran, most policymakers and analysts did not expect the Strait of Hormuz to become inaccessible to oil tankers.

Importing nations had long assumed that despite ongoing tensions in the Middle East, the strait would never actually close.

That assumption changed after shipping traffic was disrupted for nearly four months, while uncertainty over how quickly and smoothly the strait could reopen triggered an energy crisis across Asia, drained the US Strategic Petroleum Reserve to its lowest level since 1983, and pushed inventories at the WTI delivery hub in Cushing down to an operationally critical level of around 20 million barrels.

Expanding storage capacity could help reduce the impact of future supply shocks by limiting extreme price spikes during periods of disruption.

At the same time, filling those new storage facilities will require hundreds of millions of barrels of crude oil and refined fuels, creating additional demand in the short and medium term and supporting oil prices.

Inventory expansion plans

India, Singapore, Australia, and Pakistan are all seeking to strengthen their storage capacity to avoid future crises.

According to Reuters calculations, storage projects proposed in recent months could require roughly 500 million barrels of crude oil and fuels to fill the new facilities.

In addition, members of the International Energy Agency will need to rebuild approximately 400 million barrels that were released in March during the largest coordinated stockpile release in history.

Markets will also require additional barrels to offset current declines in global inventories amid strong seasonal summer demand.

Combining current and future inventory replenishment needs, additional demand could reach around one billion barrels of oil spread over several years, according to Reuters estimates.

That could help revive global oil demand beginning next year if shipping activity through the Strait of Hormuz returns to normal during the second half of this year.

India leads efforts to expand reserves

India is among the first countries moving to strengthen storage capacity. It is the world's third-largest crude oil importer but holds relatively modest reserves compared with China, which has accumulated more than one billion barrels of inventories.

India's underground strategic petroleum reserve capacity totals about 5.33 million metric tons of crude oil, equivalent to roughly 39 million barrels, enough to cover only around eight days of consumption.

The Hormuz crisis exposed India's vulnerability, prompting the government, according to reports, to ask state-owned ONGC to build and fill a new strategic reserve site at an estimated cost of $1.6 billion.

Pakistan, Singapore, and Australia boost storage

Pakistan is encouraging Gulf oil producers to establish strategic crude inventories in a planned energy city near Gwadar Port.

A Pakistani official told local media in May: "If crises such as war occur, Pakistan will have first rights to access these reserves."

Singapore, one of the world's largest oil trading hubs, said it is exploring underground storage solutions to increase fuel reserves.

Australia, meanwhile, remains unable to consistently maintain the International Energy Agency requirement of holding inventories equivalent to 90 days of consumption. The government plans to spend A$10 billion (about US$7 billion) to build larger fuel reserves.

During the recent crisis, Australia was forced to source jet fuel from China after global supply pressures intensified and one of its major refineries was shut down by a fire.

The Australian government is now seeking to establish a domestic fuel reserve by imposing minimum inventory requirements on companies while also expanding storage infrastructure through its diesel storage enhancement program.

Even producers want more storage

Plans to increase storage are not limited to importing countries.

Saudi Arabia, the world's largest crude oil exporter, is also considering expanding its global storage network.

Last week, Saudi Aramco Chairman Yasir Al-Rumayyan said the company already operates storage facilities around the world, particularly in Asia, adding: "We are seriously considering having larger storage facilities around the world."

Aluminum prices on the London Metal Exchange (LME) declined sharply, reaching their lowest levels in nearly three months after the United States granted Iran a 60-day sanctions waiver following preliminary peace talks.

The development strengthened expectations for the resumption of trade flows through the Strait of Hormuz, easing concerns over supply disruptions that had previously supported aluminum prices.

The LME cash aluminum bid price fell to $3,263 per metric ton on June 23, down from $3,403 per ton on June 22, a decline of 4.11%.

The cash offer price also dropped to $3,263.50 per ton from $3,405 per ton, marking a decline of 4.16%.

Benchmark aluminum contracts decline under market pressure

The benchmark three-month aluminum contract also moved lower, with the bid price falling to $3,269 per ton from $3,405 per ton, a decline of 3.99%.

The offer price for the same contract fell to $3,271 per ton from $3,406 per ton, down 3.96%.

Across the futures curve, the December 2027 aluminum contract also weakened, with the bid price declining to $3,115 per ton from $3,180 per ton, while the offer price fell to $3,120 per ton from $3,185 per ton, representing declines of roughly 2.04% in both cases.

The Asian benchmark price for the three-month aluminum contract on the LME stood at $3,232.50 per ton on June 23, reflecting the broader weakness prevailing in the aluminum market.

Exchange inventories decline as canceled warrants fall

Inventory data showed a slight decline in exchange-registered aluminum stocks, with opening inventories on the London Metal Exchange falling to 313,800 tons on June 23 from 315,300 tons on June 22.

The decrease amounted to 1,500 tons, or 0.48%.

Live warrants remained unchanged at 247,575 tons, while canceled warrants declined to 64,150 tons from 66,225 tons, a decrease of 2,075 tons, or 3.13%.

The decline in canceled warrants indicates a reduction in the volume of metal earmarked for withdrawal from LME warehouses.

Meanwhile, the alumina price, according to the S&P Global Platts benchmark, stood at $307.10 per ton.

Bitcoin (BTC) remains under pressure, trading near the $62,700 level on Wednesday after falling 2% the previous day.

Continued selling by institutional investors, alongside outflows from spot Bitcoin exchange-traded funds (ETFs) on Tuesday, continues to weigh on Bitcoin's performance.

Weak activity on the Chicago Mercantile Exchange (CME) is also signaling caution among traders, limiting the prospects for a recovery in the world's largest cryptocurrency.

Federal Reserve

At the same time, expectations for higher US interest rates have increased as Federal Reserve officials adopt a more hawkish tone amid the continued strength of the economy.

Tensions surrounding the framework agreement between the United States and Iran have also boosted demand for safe-haven assets after disagreements emerged between the two sides over several key issues.

According to the CME FedWatch Tool, markets are currently pricing in a 36% probability of a Federal Reserve rate hike at the July meeting, compared with 9% a week ago.

For the September meeting, the probability of a rate hike has risen to more than 70%, up from 29% previously.

Institutional money continues to leave Bitcoin funds

Institutional demand continued to weaken this week, with data from SoSoValue showing that spot Bitcoin ETFs recorded net outflows of $113.78 million on Tuesday, following outflows of $68.18 million on Monday.

If these outflows continue or accelerate in the coming days, Bitcoin could face a deeper price correction.

Derivatives traders remain on the sidelines

A report released by K33 Research on Tuesday indicated that CME data continues to reflect subdued and cautious activity, with no major changes from the trends that have prevailed throughout the year.

The annualized Bitcoin futures basis rose slightly to 5%, but remains at relatively low levels, while open interest declined by 4,730 BTC over the past week to 101,655 BTC.

This puts the CME on track to record its lowest level of open interest since October 2023 following the expiration of June contracts later this week.

At the same time, funding rates increased over the weekend and briefly reached an annualized 5%, their highest level since June 4, signaling a limited return of speculative long positions.

A K33 Research analyst said: "Positioning levels and overall activity remain weak, with no meaningful shift from the quiet market conditions that have characterized most of the year."

The analyst added that the absence of institutional momentum and strong derivatives activity continues to limit Bitcoin's recovery prospects in the near term.

Brent crude prices fell more than 1% on Wednesday to their lowest level in nearly four months, extending losses as signs emerged that more oil tankers are preparing to leave the Strait of Hormuz.

Brent crude futures declined by $1.20, or 1.56%, to $75.88 per barrel by 10:01 GMT, while US West Texas Intermediate crude fell by $1.14, or 1.6%, to $72.07 per barrel.

Brent touched a low of $75.37 per barrel, its weakest level since February 27, one day before the US-Israeli strikes on Iran began. WTI also fell to $71.55 per barrel, its lowest level since March 3.

Expectations of Iranian oil returning weigh on prices

Tim Waterer, Chief Market Analyst at KCM Trade, said: “There are early encouraging signs of increased tanker activity, but the market is pricing in the broader scenario of Iranian oil returning to the global market and the Strait of Hormuz returning to normal operations.”

He added that sanctions relief could allow Iranian production and exports to increase relatively quickly, given the large volumes of oil already stored aboard tankers, noting that the process could take “weeks rather than months.”

Signs of market weakness intensified as physical crude cargoes were sold at discounts across various regions, reshaping trade flows as markets came under pressure from a rapid increase in Middle Eastern supply, with Iran preparing to boost sales following temporary US sanctions relief.

Strait of Hormuz returns to focus amid efforts to ease shipping

Oman announced that it will keep the Strait of Hormuz open to shipping traffic without imposing transit fees, while also designating temporary northern and southern routes alongside the existing shipping channel to facilitate the safe passage of vessels departing the region.

Prices also came under additional pressure this week following the 60-day sanctions waiver granted by Washington to Tehran after the initial peace talks, allowing Iran to sell oil, alongside a reduction in hostilities in Lebanon.

Vessel-tracking data showed that three stranded supertankers successfully passed through the strait on Tuesday, while the United Nations shipping agency said an evacuation plan is being implemented to allow hundreds of stranded vessels to transit the waterway following the ceasefire agreement between the United States and Iran.

Uncertainty remains over the nuclear agreement and future exports

Despite that, uncertainty continues to surround the durability of the agreement. US President Donald Trump said on Tuesday that Iran had agreed to nuclear inspections “indefinitely,” while Tehran insisted it had made no such commitment.

Mark Malek, Chief Investment Officer at Siebert Financial, said: “Markets are currently placing excessive confidence in a positive outcome without fully pricing in the risks associated with unresolved nuclear issues and disagreements over inspection procedures.”

Investors are also closely monitoring how quickly Middle Eastern producers can restore exports and whether larger numbers of vessels will return to the region in the coming weeks.

Looking ahead, Macquarie expects Brent crude to average $77.09 per barrel in 2026 before falling to $64 per barrel in 2027.