Oil prices have fully surrendered the gains from the previous trading session, highlighting the instability of price movements driven by geopolitical factors. The market has observed that the intensity of military friction between the US and Iran has not escalated further following their mutual strikes, with both sides demonstrating relative restraint. US officials have stated that technical negotiations between the US and Iran are still ongoing. After triggering a rapid price surge, former US President Donald Trump attempted to cool the market, stating that the impact of strikes on Iran would lead to a "small" increase in oil prices, suggesting a rise of "about $2" each time. This highly suggestive commentary has influenced investor expectations for oil prices.
The limited-intensity military friction between the US and Iran has caused a sharp, near-stagnation drop in traffic through the Strait of Hormuz. Reports indicate Tehran, anticipating a potential US resumption of a maritime blockade, exported at least 10 million barrels of crude oil and fuel oil overnight. Following attacks on several tankers in the Strait of Hormuz, Qatar has paused its plans to rapidly increase liquefied natural gas production. Clearly, US-Iran geopolitical friction has disrupted the recovery pace of energy supply from the Middle East Gulf region. The Strait of Hormuz has once again become a core source of anxiety for energy markets, with Iran firmly defending its control rights over the strait and blaming the current shipping disruptions on the US. Investors are closely monitoring the impact of the US-Iran geopolitical contest on the supply side. According to reports, traffic through the Strait of Hormuz is almost at a standstill, with observable vessel activity concentrated along the Iranian-approved route near the northern part of the waterway, while the US-supported Omani corridor remains relatively quiet.
Evening reports from Iranian media stated that Pakistan and Qatar have established new communication channels with both the US and Iran. The core goal is to facilitate a halt to military actions and push the relevant parties back to the negotiation table based on the "Islamabad Memorandum of Understanding." Despite the recent escalation in conflict, Pakistan remains optimistic about the prospects of this memorandum's continuation. Furthermore, judging by the attitudes of both the US and Iran, the intensity of military friction is limited, with neither side intending to let geopolitical risks spiral out of control again. This has led to the erosion of nearly half of the geopolitical risk premium. Investors will weigh the rebound driven by short-term supply disruptions against concerns about the potential return of a supply glut in the medium to long term. Time is needed to observe the actual duration of logistics disruptions in the strait. The pace of oil price recovery is dominated by geopolitical drivers. The next moves by the US and Iran are critical, and developments in the geopolitical contest could bring volatility to oil prices at any time. Attention to timing is crucial, and participation should be cautious.
Daily Market Movements
WTI crude oil futures fell $1.44, or 1.96%, to settle at $72.08 per barrel. Brent crude oil futures fell $1.72, or 2.2%, to settle at $76.30 per barrel. INE crude oil futures fell 3.22% to settle at 465.2 yuan.
The US Dollar Index fell 0.13% to 100.94. The Hong Kong Exchange USD/CNY rate fell 0.06% to 6.7685. The US 10-Year Treasury yield rose 0.23% to 109.16. The Dow Jones Industrial Average rose 0.27% to close at 52,487.41.
Recent Key Developments
Oman has rejected the imposition of transit fees for ships passing through the Strait of Hormuz, while a voluntary service fee model has surfaced, with the global shipping industry closely watching the negotiation direction. An Omani representative explicitly stated at the 137th session of the International Maritime Organization Council that they do not support charging transit fees but are open to exploring voluntary arrangements related to navigation support services. This stance reaffirms the principle of transit passage rights within the framework of international law. Previously, US media cited informed sources reporting that Oman had submitted a proposal to the US and other Western nations suggesting shipping companies voluntarily pay service fees for using the Strait of Hormuz instead of being subject to mandatory transit fees, partially drawing on the voluntary contribution model used in the Strait of Malacca and Singapore. The Omani representative emphasized continued close cooperation with the IMO, member states, and other partners to maintain safe and open sea lanes, protect lives at sea, and enhance the resilience and sustainability of the global maritime supply chain and international trade. The 137th Council session is currently being held in London, running from July 6th to 10th. During the meeting, the UAE and several other countries submitted a proposal condemning Iran's imposition of transit fees on ships passing through the Strait of Hormuz. In response, Iran submitted another proposal, stating that it has maintained consultations with Oman on strait management arrangements and coordination measures in accordance with international law and applicable domestic regulations, and that these consultations are ongoing. The Strait of Hormuz is the world's most critical oil transit chokepoint. Any changes to the fee mechanism will directly impact crude oil shipping rates and the competitiveness of Middle Eastern exports. The focus of Oman's proposal lies in the fundamental difference between "voluntary" and "mandatory." If parties ultimately adopt a voluntary service fee model instead of a mandatory transit tax, the impact on shipping costs and oil prices would be significantly less than the market's most pessimistic expectations. The direction of these negotiations remains a key variable for energy markets next week.
Iran's Revolutionary Guard Corps has issued a warning, stating that US military strikes will provoke a "devastating response" and disrupt shipping in the Strait of Hormuz. The IRGC stated that current shipping volume through the strait has recovered to 50% of pre-war levels and blamed the current shipping disruptions on Washington's "adventurism and interference" on route issues. The Revolutionary Guard emphasized that "foreign forces have no interests in this land and the Strait of Hormuz."
Goldman Sachs has released a new report stating that if tensions in the Strait of Hormuz escalate again, leading to shipping disruptions, the recovery process of Middle Eastern crude oil supply could be significantly slowed. The firm's calculations show that Persian Gulf crude oil production in June was still about 10.5 million barrels per day below pre-war levels. Analysts, including Yulia Zhetkova Grigsby, noted in the report that while Middle Eastern oil-producing countries have gradually restarted shut-in wells over the past month, the risk of shipping disruptions in the Strait of Hormuz could slow the pace of crude oil production recovery. According to Goldman's previous estimates, about 14.5 million barrels per day of crude oil production capacity was shut down in the Gulf region in April, representing about 57% of pre-war supply. Goldman Sachs points out that both Persian Gulf crude oil flows and oil prices currently face two-way risks. If the 60-day negotiations between the parties continue, shipping security is ensured, and the US reissues waivers for Iranian crude oil exports, Persian Gulf oil flows could recover by the end of July, requiring an additional 6.6 million barrels per day to pass through the Strait of Hormuz. If negotiations break down, tanker attack incidents escalate further, and the US potentially imposes a blockade on Iranian oil, Persian Gulf oil flows could decline again. Goldman Sachs previously stated that if shipping disruptions in the Strait of Hormuz persist until 2027, Brent crude oil prices could exceed $130 per barrel by the end of 2026. Last month, as shipping through the Strait of Hormuz gradually recovered, Goldman Sachs, along with several other investment banks, lowered its oil price forecasts. The firm's analysts have also warned that the crude oil market may face a renewed supply glut.
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