The international oil price experienced a sharp decline on June 16. West Texas Intermediate (WTI) crude futures fell to $76.96 per barrel, a drop of 3.82%, marking the lowest level since March 10. Brent crude futures dropped to $79.76 per barrel, down 3.4%. Consequently, domestic chemical futures continued their weak trend. The main contract for low-sulfur fuel oil (LU) fell over 4%, liquefied petroleum gas (LPG) futures dropped 4%, fuel oil declined 3.9%, while Shanghai crude oil (SC) and asphalt futures both saw losses exceeding 3%.
Mu Guiyu, a researcher at Chuangyuan Energy and Chemicals, stated that the US and Iran announced on June 15 that a peace agreement had been reached, with formal signing scheduled for June 19. This news triggered a significant drop in crude oil prices at the week's open. The decline in crude oil costs subsequently weakened the valuation of chemical products. If shipping through the Strait of Hormuz resumes unimpeded, crude oil supply could return to roughly pre-conflict levels within two to three months. Furthermore, previously interrupted chemical export businesses due to geopolitical conflicts are expected to gradually recover. The logic of returning supply increments will continue to pressure chemical product prices.
Key Drivers of the Oil Price Plunge
According to reports, US Vice President Vance stated on June 15 that a US-Iran memorandum of understanding had been signed electronically, with its terms essentially taking effect. Vance added that many "crucial" details would need to be finalized in subsequent 60-day negotiations. Iranian Foreign Minister Araghchi concurrently stated that delegation heads are expected to meet in Switzerland on the 19th to sign the memorandum in person, followed by the first round of in-depth talks.
Zhao Ruochen, a senior researcher at Galaxy Futures, noted that since the end of February 2026, US-Israeli military actions against Iran had substantially obstructed the Strait of Hormuz, causing international oil prices to surge significantly. The confirmation of a peace consensus by the US and Iran on June 14-15 marked a turning point in market sentiment, leading to a rapid retreat of the geopolitical risk premium previously inflated by Middle East tensions. Brent crude fell sharply accordingly, hitting an intraday low of $79.76 per barrel on June 16, reaching a near three-month low.
Zhao Ruochen further analyzed that the current stage involves a preliminary signing of the memorandum. Its core demands include cessation of hostilities on all fronts including Lebanon, lifting of regional blockades, restoration of navigation through the Strait of Hormuz, easing of related sanctions, provision of economic aid, and unfreezing of restricted funds, laying the groundwork for the subsequent 60-day deep negotiations. Considering the overall situation, the risk of renewed escalation has not been completely eliminated, but the likelihood of short-term de-escalation is higher. Both the US and Iran intend to avoid a full-scale conflict, but disagreements are highly likely regarding nuclear red lines and the specifics of implementing the agreement.
Notably, Fitch Ratings recently opined that the current oil price spike reflects a "temporary logistics supply shock" rather than a permanent loss of production capacity. Fitch pointed out in a related report that the agency anticipates the Strait of Hormuz could resume navigation around the end of July, with Brent crude prices expected to decline significantly from their highs between March and July.
Under Fitch's baseline scenario, if the Strait of Hormuz resumes navigation before the end of July, the average annual price for Brent crude in 2026 would reach $87 per barrel. Fitch estimates that international oil prices will face downward pressure after the strait reopens, with the crude oil market quickly moving into a supply surplus, potentially reaching 4 million barrels per day in the fourth quarter. The actual supply-demand balance will still depend on subsequent adjustments to OPEC's production cut policies.
However, the latest shipping data shows no significant recovery in the number of vessels transiting the strait, with overall traffic volume remaining low. Zhao Ruochen indicated that the total number of vessel transits in the Persian Gulf on June 15 was 8, including 0 container ships, 0 crude oil tankers, 0 product tankers, 1 LNG carrier, 0 LPG carriers, and 7 other vessels; 4 vessels entered and 4 departed. Following the peace agreement announcement, major shipping companies remain in a wait-and-see mode, awaiting the formal signing of the memorandum and the actual implementation details for strait navigation. Before the deterioration of the strait situation, the Persian Gulf averaged about 120 vessel transits daily, including approximately 20 crude oil transport vessels.
Widespread Declines in Energy and Chemical Products
As the Trump administration advances a plan to release 172 million barrels from the Strategic Petroleum Reserve (SPR) to curb fuel prices pushed up by the US-Iran conflict, US strategic oil reserves have fallen to their lowest level since 1983. Data released by the US Department of Energy on June 15 shows that the SPR, established in the early 1970s following the Arab oil embargo, currently holds about 340 million barrels, nearing a historical low.
The US Department of Energy announced the release plan in March this year. This release action is part of a multi-country joint effort to stabilize oil prices within two weeks of the US-Iran conflict outbreak. If the entire release plan is implemented, this would become the second-largest release operation in the history of the US SPR. Reserve inventory would then fall to around 243 million barrels, only one-third of the statutory storage limit. The reduction in inventory will diminish the US's flexibility to respond to future supply disruptions.
According to traditional market logic, a low-inventory environment typically supports higher oil prices. Why has the current market trend continued to weaken? Zhao Ruochen analyzed that the core reasons for the sustained decline in international oil prices are the rapid unwinding of geopolitical risk premiums, coupled with weakening global crude demand expectations and the existence of temporary supply buffers in the market. Theoretically, low US strategic reserves should support oil prices, but the current market focus is concentrated on expectations of Middle Eastern crude supply restoration. Low inventory increases supply-side vulnerability and amplifies potential volatility risks but does not immediately push prices higher. After the strait reopens, restocking demand may support oil prices.
The decline in international oil prices transmits downstream along the industrial chain, putting pressure on domestic chemical-related futures markets. The main transmission logic is that crude oil is the benchmark for upstream chemical raw materials and energy costs. A drop in oil prices implies a loosening at the cost end, driving prices lower. Mu Guiyu pointed out that methanol futures have weakened significantly recently, with the core logic being the market expectation of increased import supply after Middle East geopolitical tensions eased. Port inventories are expected to shift from destocking to accumulation. The previous bullish logic of reduced imports has faded, and the tight inventory situation is expected to ease significantly.
The current global methanol plant operating rate is 56.67%. In Iran, only 5 out of 10 production units are maintaining operations. If the remaining units resume production gradually, the global operating rate is expected to recover to the conventional range above 70%. Expectations of increased imports continue to pressure methanol futures prices. Meanwhile, Mu Guiyu stated that the recent price pressure on urea stems more from its own fundamentals.
Mu Guiyu noted that the sustained weakness in urea futures is mainly due to two reasons. First, domestic supply is at a five-year high compared to the same period, with many new production capacities still scheduled to come online in the second half of the year, making it difficult to alleviate overall supply pressure. Industrial and agricultural rigid demand lacks short-term stimulus, and factory inventories continue to accumulate. Second, although export policies have been somewhat relaxed, the total export quota for the domestic market is limited. As a key regulated agricultural input, urea has long been subject to domestic price guidance ranges, continuously limiting upside potential in the futures market. Export-related news only brings temporary pulse movements, and the short-term market is expected to maintain a weak and volatile pattern.
Investment Banks Universally Lower Forecasts
As international oil prices continue to fluctuate, the multiple factors affecting their price trends have also drawn widespread market attention. In this regard, Zhao Ruochen stated that after the US and Iran sign the memorandum, the core variable the market most closely watches is the navigation status of the Strait of Hormuz and the speed of crude supply recovery, as this indicator will directly dominate market trends. The weight of geopolitical tensions on oil prices will gradually diminish, but tail risks remain regarding the direction of US-Iran nuclear talks, the situation in surrounding areas like Lebanon, and Israeli military movements.
In addition, restocking expectations spurred by low global inventories, summer crude consumption peak demand, and OPEC+ production increase plans are also core fundamental factors affecting oil prices. Wall Street investment bank Goldman Sachs lowered its oil price forecasts, reducing its Q4 2026 Brent crude price expectation from $90 to $80 per barrel, and lowering its 2027 average Brent price forecast from $80 to $75. The bank expects the average WTI price in Q4 2026 to be $75 per barrel and $70 per barrel in 2027. The institution anticipates Persian Gulf oil exports could recover to pre-conflict levels by the end of July, earlier than the previously estimated end of August.
Morgan Stanley also lowered its oil price forecasts, reducing its Q3 Brent price expectation from $100 to $90 per barrel, and its Q4 expectation from $95 to $80. The institution predicts that crude oil production will gradually recover starting from mid-July, with capacity recovering to 50% of pre-conflict levels by September, 80% by December, and remaining capacity to be restored by early 2027. The agency forecasts that the global crude oil market will return to a supply surplus in 2027, with visible inventory increases potentially reaching 2.4 million barrels per day.
Regarding the subsequent trend of international oil prices, Zhao Ruochen stated that in the short term, due to the realization of the agreement's benefits, the gradual opening of the strait, and the fading of risk premiums, international oil prices are trending weaker. However, supported by factors such as the lengthy cycle for strait navigation restoration and capacity return, coupled with low global crude inventories, oil price resilience at the bottom is strong, making it almost impossible for prices to fall back to pre-conflict levels within the year. Overall, the market is shifting from "conflict premium" pricing to "recovery reality" pricing.
Furthermore, regarding the subsequent performance of chemical products, Mu Guiyu stated that for methanol futures, if the US-Iran agreement is successfully implemented and the strait maintains normal navigation, port inventories may return to an accumulation channel in the long run, potentially easing the tight supply situation for near-month contracts. Investors could pay attention to arbitrage opportunities involving the spread between near and distant month contracts. Urea's short-term fundamentals are not expected to change significantly, likely continuing a volatile adjustment pattern. In the long term, attention should be paid to summer fertilizer demand performance and whether subsequent export policies are adjusted.
Dragged down by the dual negatives of weakening costs and expectations of restored crude supply, asphalt futures recently experienced three consecutive days of declines, with a single-day drop of 2% on June 16. Data from Bai Chuan Ying Fu shows that this week's domestic asphalt refinery operating rate was only 14.33%, with weekly output at 203,000 tons, a significant year-on-year decrease of 63%. Spot supply is tight in South and East China, with the futures basis strengthening accordingly. Industry insiders indicated that in the short term, after the expected US-Iran agreement materializes, raw material supply may recover. Coupled with the drag on rigid demand from the southern rainy season, the relatively strong pattern of asphalt faces correction.
Comments