Key market developments and essential data are highlighted.
At the close of trading, the price for the July delivery light crude oil futures contract on the New York Mercantile Exchange fell by $4.70 to settle at $76.05 per barrel, a decline of 5.82%. The price for the August delivery Brent crude futures contract on the London ICE Futures Europe exchange dropped by $4.21 to settle at $78.96 per barrel, a decrease of 5.06%. As of 2:30 AM local time, the main SC crude oil futures contract closed down 3.93% at 509 yuan per barrel.
Reports indicate that the United States will permit Iran to immediately resume oil export sales. According to the reports, under the terms of an agreement, the US will allow Iran to promptly restart sales of oil and fuel exports, providing Tehran with an upfront economic incentive to help de-escalate the conflict. The provisions granting exemptions from oil sales sanctions are set to take effect immediately upon the signing of the agreement this week. Concurrently, necessary supporting services for oil sales, such as banking, transportation, and insurance, will also receive exemptions to ensure the smooth execution of related transactions. The United Against Nuclear Iran (UANI) group stated that a supertanker loaded with Iranian crude oil has departed from the port of Chabahar, crossed the US blockade line, and sailed out of the Gulf of Oman on Tuesday with its vessel tracking system activated. This marks the first such occurrence since the US imposed a maritime blockade in April of this year. A senior US official stated on Tuesday that although Iran will receive upfront sanction exemptions for oil sales, long-term and sustained sanction relief will depend on Iran's compliance with US demands, including issues related to opening straits and its nuclear program. The official added that Iran will only be able to sell oil if it adheres to all agreed terms, including not interfering with freedom of navigation in the Strait of Hormuz and not acquiring nuclear weapons. Furthermore, Iran will not immediately gain access to the billions of dollars in frozen overseas funds.
US President Trump stated that the US is prepared to allow the exemption for Russian oil sanctions to expire.
Reports indicate that the US-Iran agreement allows Tehran to sell oil immediately.
According to Serbian state television, the sanction grace period for Serbia's NIS oil company, which is owned by Russia and under US sanctions, has been extended to July 1.
According to Venezuelan state television, Venezuela's state-owned oil company, PDVSA, has signed a memorandum of understanding on crude oil and natural gas with Spain's Repsol.
The US and Iran are preparing to formally sign an interim peace agreement in Switzerland on Friday. Both sides claim victory, but oil traders and shipping companies remain uncertain about how quickly navigation through the Strait of Hormuz can be restored. President Trump is currently attending the G7 summit in France, where G7 member states are expected to play a key role in potential mine-clearing operations in the Strait of Hormuz to assist in restoring navigation. A G7 official familiar with the matter revealed that Italian Defense Minister Crosetto met with US Defense Secretary Hagerty in Washington on Monday, discussing Italy's readiness to deploy a four-vessel task force to the Strait of Hormuz. The official stated this includes two mine countermeasure vessels currently stationed in Djibouti and prepared for the mission.
HSBC analysts state that oil transportation through the Strait of Hormuz is unlikely to return to normal before the end of July, with a full return to pre-conflict levels not expected until the end of September. They noted, "The obstacles include clearing mines, restoring insurance, clearing excess Gulf oil inventories, redeploying vessels, and restarting idle upstream oil fields and downstream infrastructure in several Gulf producers."
"We expect Saudi Arabia and the UAE to return to pre-conflict levels relatively quickly, while other producers may take longer—months rather than weeks," HSBC added. Under a scenario of partial reopening, where Iran retains influence over the strait through a "Persian Gulf Strait Authority," oil supply could recover to about 60% of pre-conflict levels, which would keep the oil market in a deficit state through 2027.
Reports indicate that the US military has secretly conducted dozens of ship-to-ship crude oil transfer operations in the Gulf, emulating a model long used by Iran to circumvent sanctions, in an effort to maintain energy export flows from the region. Utilizing aerial drones, surface drones, and helicopters, the military guides convoys to waiting tankers. The operation takes place on the fringes of the Strait of Hormuz. Individuals familiar with the operation confirmed two specific locations for the oil transfers: one off the coast of Fujairah in the UAE, and another off the coast of Sohar in Oman. Based on shipping data and satellite imagery, the operation began in early May, with at least 92 vessels involved. Satellite images show that as of June 11, 17 pairs of vessels could still be seen simultaneously transferring crude oil at these two locations.
Market Analysis Overview
The specific details within the US-Iran memorandum of understanding remain unclear, but it has been explicitly stated that the blockade and sanctions on Iranian oil will be lifted. Iran may replicate the Venezuela model, transitioning from sanctioned oil to compliant oil, which would have a significant impact on the global crude oil market. Once market access opens up, Iran's potential spare production capacity and floating storage inventories would substantially increase market supply. Following the Middle East conflict, Russian oil would be the only crude subject to sanction restrictions. If the Strait can quickly restore pre-conflict flow levels, supply in the compliant oil market would increase significantly. However, caution from shipowners means the recovery in flow will not happen overnight.
Trading Approach
The oil market faces numerous uncertainties due to the Middle East situation, making participation in the crude market highly risky at present. It is advisable to use options instruments to hedge against this risk.
Potential Market Risks
Downside risks include a de-escalation of the Middle East conflict, the restoration of navigation through the Strait, and a global economic crisis triggered by high inflation.
Upside risks include a resumption of war between the US and Iran, and a global decline in oil inventories to critical levels causing a tangible supply shortage.
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