Oil prices tumbled once again on Wednesday, with WTI crude falling below the $70 mark, dragging major crude futures contracts back to levels seen prior to the outbreak of the US-Iran conflict. The front-month Brent contract has once again shifted into a contango structure, while China's SC crude has already been in contango. This indicates that not only has geopolitical premium been erased, but the market is even beginning to price in future supply surpluses. Despite crude inventories remaining in a drawdown phase, particularly with US stocks continuing to decline rapidly, this has failed to halt the slide in oil prices.
Data released by the EIA showed commercial crude inventories fell by a larger-than-expected 6.088 million barrels, with the drawdown significantly exceeding the earlier API-reported decline. Strategic petroleum reserves also saw a substantial drop of 9 million barrels. Furthermore, crude stocks at the WTI delivery hub in Cushing, Oklahoma, plunged by another 1.077 million barrels, falling below the 20-million-barrel depletion line for the first time since 2015. However, to the disappointment of bulls anticipating a rebound, this data did not trigger a price recovery. Market focus remains squarely on the clear progress in supply-side recovery. Judging from statements by Gulf nations this week, the pace of oil production restoration appears to be exceeding expectations. Kpler data indicates crude flows through the Strait of Hormuz are recovering, with transit volumes rising to approximately 4.8 million barrels per day in June following the signing of a US-Iran Memorandum of Understanding (MoU). This represents considerable progress, and the pressure from increasing supply has outweighed the bullish impact of falling inventories.
Market panic has driven a sharp sell-off in crude oil, with the intuitive assessment being that prices have fallen excessively. While an unexpectedly strong supply rebound has driven the plunge, crude inventories are simultaneously declining rapidly. Meanwhile, global refined product crack spreads remain elevated, reflecting that supplies of petroleum products are still relatively tight at this stage. This rare divergence highlights the peculiar nature of the current situation. Beyond the pressure from recovering supply, as expectations for Federal Reserve interest rate hikes have intensified, driving a sustained US dollar rally, risk assets like gold, silver, and copper have generally weakened over this period. In this pessimistic atmosphere, the oil market appears to be in a state of excessive panic, with sentiment in an unstable phase. The irregular public statements from the White House regarding the Iran conflict are creating confusion in the energy markets, making it nearly impossible for companies to formulate operational plans for the coming months. Significant volatility in oil prices could emerge at any time, necessitating careful attention to market rhythm and cautious participation.
Daily Market Movements
WTI crude oil futures fell $2.87, or 3.92%, to settle at $70.34 per barrel. Brent crude oil futures fell $2.93, or 3.82%, to settle at $73.87 per barrel. INE crude oil futures declined 3.78%, closing at 470.6 yuan.
Recent Key Developments
At least 36 bulk commodity vessels transited the Strait of Hormuz on Monday, setting a new single-day record since the outbreak of the Iran conflict, indicating that shipping activity in the strait is gradually emerging from the shadow of geopolitics. This figure is close to one-third of the peacetime daily average of about 120 transits. Data from maritime analytics firms show that while absolute levels remain far below normal, the passability of the channel is continuously improving. The Strait of Hormuz is one of the world's most critical energy shipping chokepoints; prior to the conflict, over one-fifth of global oil and LNG shipments passed through these waters, and it is also crucial for grain and consumer goods supplies entering the Gulf region.
Crude flows through the Strait of Hormuz are recovering, though the strait has not yet returned to normal. Following the signing of the US-Iran MoU, June transit volumes have risen to approximately 4.8 million barrels per day. This is primarily due to visible Iranian vessel transits, the release of non-Iranian cargoes trapped within the Gulf, and the continued 'dark' transits of non-Iranian laden vessels post-April. With the average 2025 shipping volume near 15 Mbd, the current level suggests about one-third of that volume has been recovered so far in June.
The UAE's crude exports in early June had recovered to nearly 85% of pre-conflict levels, reaching 4.3 million barrels per day, according to the IEA. An Iraqi oil official stated the country aims to increase crude production from southern oilfields to about 2.1 million barrels per day, with production from the Rumaila field targeted to reach approximately 1.1 million barrels per day. Venezuela has increased production by about 400,000 barrels per day since late 2025, with exports in most weeks since early May approaching 1.2 million barrels per day. Libya's National Oil Corporation announced the country's crude oil production has climbed to 1.44 million barrels per day, setting a production record high since 2013.
Impact of China's Absence
Chinese refinery runs remain approximately 2.6 million barrels per day lower than pre-disruption levels. About 10 cargoes of Angolan crude for July loading remain unsold, with roughly 25 Nigerian cargoes also unsold. The premium for Brazil's Tupi crude has fallen from $7.50/barrel to less than $3/barrel versus ICE Brent. A positive signal is that ESPO crude imports have climbed by 328,000 barrels per day month-over-month to 800,000 barrels per day, the highest level since March. Market outlook: If Chinese demand does not see a substantive recovery, Dubai-linked grades will continue to face pressure. Key bottoming signals for market stabilization would be China resuming SPR replenishment, strengthening refining margins, or relaxing restrictions on refined product exports. Even if exemptions are announced, normalization of transportation will still take several weeks, providing short-term support to the price differential structure.
Comments