The international crude oil market is undergoing an unprecedented "dual pressure test" this year. On one hand, the International Energy Agency (IEA) recently issued its most pessimistic supply and demand forecast since 2020, indicating the first decline in global oil demand in six years. On the other hand, Middle East geopolitical conflicts have nearly halted traffic in the Strait of Hormuz, disrupting crude oil supplies. Against this backdrop of simultaneous severe shocks to both supply and demand, how can one grasp the underlying logic of major power competition and clarify the operational dynamics of the crude oil market? On April 22, the in-depth dialogue live program "Futures Relativity" provided a detailed explanation of the new trading logic in the crude oil market.
Wu Shiping, a strategic consultant in the energy industry, stated that the crude oil market currently faces weak supply and demand, maintaining a relative balance. While this makes a significant bull market unlikely, it is sufficient to support prices fluctuating at high levels. Furthermore, considering that US strategic objectives remain unmet, the "aggression under restraint" posture of the Trump administration is unlikely to end soon. Even if US-Iran negotiations show phased progress, geopolitical conflict risks will not disappear entirely. Traders are advised to understand the market's dynamics from a global strategic perspective.
"Specifically, the Trump administration's Middle East strategy is shaped by regional security patterns, ally requirements, and foreign policy decision-making mechanisms, resulting in a state of 'aggression under restraint.' Overall, the US tends to reduce strategic resource investment in the Middle East. However, with increased presidential power concentration and weakened institutional constraints, the US might instead undertake higher-intensity but more limited military actions. This represents neither a complete withdrawal from nor a full return to the Middle East, but a complex hybrid: strategic contraction continues, tactics become more aggressive, resource investment is more restrained, and military deterrence remains firm," Wu Shiping said.
Based on this US political approach, Wu Shiping believes that, in the long term, conflicts in the Middle East may be difficult to fully平息. The US's security stance favoring Israel will continue to provoke conflicts with Iran's allies, spilling over into neighboring countries. By shifting security responsibilities to allies, the US finds its leverage diminished and often gets drawn into conflicts involuntarily. The US global strategic layout could also become imbalanced; if the Middle East situation spirals out of control, it would divert strategic resources away from other regions.
Zhang Qi, a procurement manager, identified the most prominent fundamental contradiction in the current crude oil market as the disconnect between futures and spot prices. "Taking mid-April data as an example, crude oil spot prices in the European and Atlantic markets were around $140 per barrel, with some North Sea spot prices nearing $150 per barrel. Middle Eastern Omani spot prices were also between $130 and $140 per barrel, with some extreme transactions or quotes even exceeding $150 per barrel. In other words, the actual deliverable crude oil spot price is at least $30 per barrel higher than mainstream futures prices. In stark contrast, the front-month contracts for Brent and WTI crude oil futures are trading around $100 per barrel, with far-month contracts having fallen to near $80 per barrel," he said. The current high spot premium in the crude oil market creates an unusual "distorted" state.
Zhang Qi believes the core reason for high spot prices is supply disruption. Obstructions to shipping in the Strait of Hormuz, attacks on some energy facilities in the Middle East, and soaring tanker freight and insurance costs have collectively driven up the price of deliverable crude oil. Meanwhile, under extreme events, the price discovery function of futures prices is impaired, reflecting more of market expectations such as eased geopolitical tensions and improved risk appetite among investors, leading to a significant widening of the futures-spot spread.
Zhang Qi warned that the current "distortion" in futures prices significantly increases market participation difficulty. Traders need to enhance risk control and be vigilant regarding three key risks: first, price volatility caused by rapid expansion or contraction of geopolitical risk premiums; second, the impact of liquidity contraction on the crude oil market in a high-leverage environment; and third, hedging failure due to失控 basis risk. Additionally, physical enterprises should adjust their hedging strategies according to their specific situations and improve mechanisms for coping with extreme risks.
"Looking at the price chart for crude oil, the current market behavior is quite similar to the high-volatility period during the 'Arab Spring' from 2011 to 2014," Wu Shiping noted. Given this high-volatility environment, traders should avoid making decisions based solely on news headlines and proceed with caution.
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