Oil Prices Are Up Even as Hormuz Flows Increase. That's the Market Refusing to Believe the Recovery

The oil market has been serving up a headline that looks like a contradiction. Prices are pressing against their highest levels in weeks — Brent around $90 a barrel, WTI near $84, up more than 40% year to date — at the same time that reports say the Strait of Hormuz is moving increasing volumes again. More supply and higher prices in the same news cycle seems backwards. It isn't. Resolve the paradox and you'll understand what the market is actually pricing, and what that means for every oil-exposed stock you own or watch.

Start with the scale of what collapsed. Before the U.S.-Israeli strikes on Iran in late February, the strait carried roughly 21 million barrels a day of oil and fuels — about one-fifth of the world's oil flows. After Iran announced the waterway's closure on March 2, the Energy Information Administration measured the average Q2 flow through the strait at just 4.9 million barrels a day. That is not a dip; that is the planet's most important oil lane going from a river to a trickle.

Now measure the "increase" you're reading about against that baseline. Late-August trader estimates put current shipments at six to eight million barrels a day. U.S. Energy Secretary Chris Wright quoted about 9 million barrels a day crossing in mid-August — roughly 45 percent of pre-war levels. Put plainly: six months into the war, roughly half of the Persian Gulf's exports still are not reaching open water.

The quality of those barrels matters as much as the count. Worth noting what's not happening, though: the rising flow number is not free commerce returning to Hormuz. It is a shadow system. Tankers move with transponders turned off, under naval escort, or on a narrow route Iran insists run near its own coastline, then transfer their cargo to roughly 150 ships idling off the coast of Oman — up from about 40 in January. Shuttle traffic of that kind is how barrels get counted as "transiting Hormuz," and it is not the same thing as the strait reopening. War-risk insurance has become the choke point's real gatekeeper: it is expensive enough that only shippers willing to run the blockade participate.

The market has already watched this recovery reverse once, and that memory is the reason prices are climbing against the flow count. In June, after an interim agreement, vessel traffic through the strait recovered to roughly 20 ships a day — four times the wartime low. On July 14 the United States resumed its blockade of Iranian ports, and traffic fell straight back to about five ships a day, where it has essentially stayed since. Traders counted just five commercial vessels transiting in one mid-August weekend, and zero the next, against 31 the weekend before. The pattern — flows surge on diplomatic headlines, then reverse when the deal frays — is exactly why analysts keep saying the market won't move prematurely on ceasefires that keep proving to be false starts.

Which brings us to the second half of the puzzle: if the strait is still mostly closed, why isn't oil at the $150 a barrel that was feared in the spring? Because a set of temporary buffers has absorbed the shortfall, and each one is finite. The U.S. Strategic Petroleum Reserve has been drawn below 300 million barrels — the lowest since 1983 — as part of a planned release of 172 million barrels. Global inventories have been draining at an average of more than four million barrels a day. Saudi Arabia has rerouted what it can through its East-West pipeline to Red Sea ports, and the UAE's Habshan-Fujairah line bypasses the strait outright. And demand is doing its part too, with the IEA cutting its 2026 consumption forecast by 1.6 million barrels a day. Add it up and the "recovery" is real only in the sense that risky, expensive barrels are flowing and governments are spending one-off reserves to keep prices off triple digits. None of that is durable supply.

Here is the part that reaches your portfolio. The price is telling you the market believes the flow recovery is fragile and reversible — not that higher flows mean cheap oil coming. For producers, that creates a genuine but time-limited cash-flow windfall, and the balance sheets show it. ConocoPhillips has generated $21.9 billion in operating cash flow over the trailing twelve months, with free cash flow up 45 percent year over year; Diamondback Energy's free cash flow grew roughly 144 percent. Both stocks have risen about a third to 40 percent this year, tracking the jump in crude.

The question the prudent investor asks now is not whether the windfall is real — it is. It's whether the price already assumes the windfall lasts. The EIA's own forecast lays out a normalization path: Brent averaging $85 in the third quarter, $78 in the fourth, and $69 in 2027 as flows heal and inventories rebuild. Against that path, ConocoPhillips trades at roughly 6.4 times EV/EBITDA and 16 times forward earnings with a 2.6 percent yield; Diamondback sits near 10.8 times EV/EBITDA and 13 times forward earnings. Those multiples are not demanding for the cash flow being thrown off at $90 oil — but they only stay undemanding if some of today's $90 carries forward. The honest margin-of-safety test is whether the cash flows still support the valuation at $70 oil, because that is what the primary source says normal looks like.

So when the next "Hormuz flows increase" headline crosses your screen, don't read the contradiction as noise. The price is the market's real-time judgment that the barrels being counted are costly, covert, and hostage to a ceasefire that has already broken once. The two numbers that would change the reading are the same two this piece has leaned on: whether vessel traffic through the strait climbs toward pre-war levels without escorts and shuttles, which would be a genuine reopening; and where the Strategic Petroleum Reserve sits, because that is the buffer that has been quietly doing the market's work all summer. Until one of those moves, the premium in the oil price is a judgment about fragility, and it should be priced into the oil stocks you hold as exactly that — a war premium with an expiration date written in the EIA's own forecast, not a permanent feature of the business.