Oil prices retreated after an initial surge to close lower on Wednesday. Shortly after the EIA released its inventory data at 22:30 during the night session, prices began to fall from their intraday highs. Although various indicators point to a worsening supply shortage due to continuously declining inventories, several factors contributed to the pullback. Major institutions have revised down their crude oil demand expectations in their monthly reports, citing the impact of high prices. Additionally, the focus has shifted to a potential diplomatic visit to China, which could introduce changes to the geopolitical landscape in the Middle East, leading some market participants to adopt a wait-and-see approach. While the oil price itself underwent a technical correction, the backwardation in the crude oil market actually strengthened, reflecting the underlying tight supply conditions. Until a substantial improvement in supply materializes, the overall price level is unlikely to see a significant decline.
The OPEC monthly report released on Wednesday showed that OPEC+ crude oil production averaged 33.19 million barrels per day in April, a decrease of 174,000 barrels per day from March, driven by production cuts from Middle Eastern members due to the conflict in Iran. Saudi Arabia reported to the organization that its April production fell by another 651,000 barrels per day from the previous month to 6.316 million barrels per day. Since February of this year, Saudi Arabia's crude oil production has cumulatively declined by 42%, reaching its lowest level since the Gulf War in 1990. OPEC revised down its forecast for global oil demand growth in 2026 from 1.38 million barrels per day to 1.17 million barrels per day, while raising its 2027 growth forecast from 1.34 million barrels per day to 1.54 million barrels per day. The earlier-released IEA monthly report indicated that global oil demand this year would decrease by 420,000 barrels per day. However, the supply side contraction is more pronounced, with over 14 million barrels per day of crude oil production currently shut in across the Middle East, constituting an unprecedented supply shock. Even if shipping through the Strait of Hormuz gradually resumes in the third quarter, supply in 2026 is projected to fall short of total demand by 1.78 million barrels per day. This stands in stark contrast to the 410,000 barrels per day surplus predicted in last month's report and the nearly 4 million barrels per day surplus forecast in the December report.
Separate satellite data indicates that onshore storage tanks at Iran's key crude export hub, Kharg Island, are highly saturated and nearing operational capacity limits (designed capacity approximately 30-34 million barrels). Estimates suggest a critical point was reached or approached by mid-May. In response to reports that U.S. sanctions have severely crippled Iran's oil export capabilities, Iran stated that controlling the Strait of Hormuz could generate revenue equivalent to twice its oil income. The Iranian military declared that any country wishing to pass through the Strait of Hormuz must do so under Iranian "supervision," without specifying the method. According to several shipbrokers, Iran has recently required transit vessels to obtain prior permission and imposed a passage fee of up to $2 million per ship. Vahid Jalalzadeh, head of the Iranian Parliament's National Security and Foreign Policy Commission, stated that a strategic proposal for the "smart management" of the Strait of Hormuz is in its final stages and has been submitted to the parliamentary system for review. The differences between the U.S. and Iran regarding control of the strait and the nuclear issue are evident, and reaching an agreement will require time.
Oil prices are expected to maintain high volatility and remain susceptible to adjustments based on shifting geopolitical expectations. However, the overall supply and demand fundamentals continue to support a strong price environment. The navigation situation in the Strait of Hormuz remains the most critical factor determining the direction of oil prices. During the second quarter, the supply deficit is widening, which, while supporting high price volatility, is also likely to push the overall price level gradually higher. Market participants are advised to carefully manage timing and strengthen risk controls.
Daily Market Movements: 【1】WTI crude oil futures fell $1.16, or 1.14%, to settle at $101.02 per barrel. Brent crude oil futures fell $2.14, or 1.99%, to settle at $105.63 per barrel. INE crude oil futures fell 3.4% to settle at 622.2 yuan. 【2】The U.S. Dollar Index rose 0.2% to 98.48. The USD/CNH exchange rate fell 0.06% to 6.7731. U.S. 10-year Treasury yields rose 0.04% to 110.06. The Dow Jones Industrial Average fell 0.14% to 49,693.2.
Recent Key Developments: 【1】International Energy Agency: Global Oil Supply to Fall Short of Demand This Year Due to Iran Conflict ⑴ The International Energy Agency stated in its monthly oil market report on Wednesday that global oil supply will fail to meet total demand this year due to severe disruptions to Middle Eastern oil production caused by the conflict in Iran. The agency noted: "With tanker shipping through the Strait of Hormuz still restricted, cumulative supply losses from Gulf producers have exceeded 1 billion barrels. Currently, over 14 million barrels per day of crude oil production is shut in, constituting an unprecedented supply shock." ⑵ The IEA stated its baseline assumption is that shipping through the Strait of Hormuz will gradually resume starting in the third quarter. The agency's projections indicate that supply in 2026 will fall short of total demand by 1.78 million barrels per day. This contrasts sharply with the 410,000 barrels per day surplus predicted last month and the nearly 4 million barrels per day surplus forecast in December. ⑶ The agency stated that due to the conflict, full-year 2026 supply will be reduced by approximately 3.9 million barrels per day, a significant downward revision from the previous forecast of 1.5 million barrels per day. The IEA now expects demand this year to decrease by 420,000 barrels per day, compared to a prior forecast of an 80,000 barrels per day decrease. The agency attributed pressure on consumption to demand erosion and slowing economic growth caused by surging oil prices.
IEA Monthly Report: OPEC+ production has fallen to its lowest level in 35 years. This forecast for OPEC+ considers the United Arab Emirates. Following demining operations in the Strait of Hormuz, exports will take at least 2 to 3 months to fully normalize. Production in Gulf countries is 14.4 million barrels per day below pre-conflict levels. Second-quarter demand is expected to decrease by 2.45 million barrels per day (previously forecast at a 1.5 million barrels per day decrease). U.S. crude oil supply in 2026 is expected to increase by 610,000 barrels per day. OPEC+ crude oil supply in April decreased by 830,000 barrels per day. The baseline forecast assumes transport flows through the Strait of Hormuz will begin a gradual recovery from June. Production from OPEC+ producers is expected to decline by 4.7 million barrels per day in 2026. Global oil supply fell a further 1.8 million barrels per day in April to 95.1 million barrels per day.
IEA Monthly Report: Due to attacks, reduced crude supply, and export restrictions, global refinery runs in 2026 are projected to decline by 1.6 million barrels per day. The Middle East conflict is depleting global oil inventories at a record pace, with a draw of 246 million barrels between March and April. Total global oil supply in 2026 is projected to fall short of demand by 1.78 million barrels per day (the previous report forecast a surplus of 410,000 barrels per day). 【2】Hormuz Blockade Tightens, Middle East Crude Spot Prices Rise for Third Consecutive Day, Physical Premium Nears $9 ⑴ Spot premiums for Middle East crude benchmarks like Oman, Dubai, and Murban rose for a third consecutive session on Wednesday. The cash Dubai premium to swaps climbed to $8.28 per barrel, up 43 cents from the previous day. Although the pace of increase moderated, the tight supply situation showed no signs of easing. ⑵ Singapore spot trading records show BP sold multiple spot cargoes to Vitol, each priced at $104.90 per barrel, matching the cash Dubai quote. This indicates high concentration of physical market liquidity among a few sellers, leaving buyers with extremely limited bargaining power. ⑶ Kuwait significantly lowered the official selling price for its crude exports to Asia in June to a premium of $12.75 per barrel, down from $17 in May, though this remains well above historical averages. Russia's April crude oil production fell by 460,000 barrels per day year-on-year to approximately 8.8 million barrels per day. Japanese refinery utilization rates rose above 70% for the first time since March. ⑷ Thailand's PTT issued a tender seeking to purchase 1 million barrels of sweet crude for loading from June onward, with the tender closing Thursday. A Chinese supertanker carrying 2 million barrels of Iraqi crude attempted to transit the Strait of Hormuz on Wednesday, indicating buyers are still willing to take risks to secure physical supply, though navigation risks continue to suppress overall market liquidity. 【3】Trump: Open to Extending Russia Oil Sanctions Waiver, Says Will "Take All Necessary Steps" to Stabilize Market （1）Against a backdrop of rising oil prices and global market weakness, U.S. President Donald Trump stated on Wednesday that he is open to extending the waiver on Russian oil sanctions, saying the U.S. would "take all necessary steps" to stabilize the situation. （2）The U.S. had extended the waiver on Russian oil import sanctions until May 16, allowing countries to purchase Russian petroleum products. This came just days after U.S. officials indicated they would not renew the special waiver. （3）When asked by Asian News International (ANI) whether he would continue granting the waiver, Trump stated he would take all necessary steps, including extending the waiver. He expressed belief that the conflict would not last long and anticipated oil prices would fall and stock markets would rise. （4）Trump mentioned that several oil tankers are waiting to transit the Strait of Hormuz, and once passage resumes, oil supply would increase significantly, and inflation would drop substantially. （5）Regarding reaching a peace agreement with Iran, Trump stated the U.S. only seeks a "good deal" and claimed Iran's military capabilities have been completely destroyed. （6）When asked about red lines for a peace plan, Trump claimed to have "beaten" the Iranian military and emphasized that Iran must not and will not have nuclear weapons, asserting that Iran understands this and there is consensus on the matter. （7）Simultaneously, Trump posted on his social media platform, Truth Social, criticizing "fake news" for claiming Iran was "making progress," accusing it of aiding the adversary. He claimed all 159 ships of the Iranian navy were sunk, its air force no longer exists, its economy is in shambles, and stated only losers and fools oppose the United States.
Comments