Geopolitical tensions in the Middle East have eased and shipping traffic through the Strait of Hormuz has resumed, leading to a continued decline in oil prices. On Thursday, the main domestic crude oil futures contract in China fell by over 5%, with energy and chemical products collectively dropping. In overnight trading, both WTI and Brent crude oil prices declined, hitting fresh lows not seen in nearly four months. The current pricing of crude oil remains primarily focused on geopolitical developments. As Middle Eastern oil transportation gradually recovers and a large number of stranded tankers depart from the Persian Gulf, the United States and Iran have entered a 60-day negotiation period. This has led to a dissipation of the geopolitical risk premium for oil, with prices expected to remain in a low-volatility range in the short term.
Key Geopolitical Developments
The U.S. President stated that indirect negotiations with Iran have made "very good progress," while the ongoing restoration of shipping through the Strait of Hormuz has alleviated market concerns about supply disruptions in the Middle East. Speaking to reporters at Joint Base Andrews, the U.S. President said, "Progress on Iran's denuclearization is going smoothly; they had a very good meeting." This week, the U.S. and Iran held indirect technical talks in Doha, Qatar, focusing on key issues such as safe navigation through the Strait of Hormuz, ceasefire arrangements, and Iran's nuclear program. Although no face-to-face meetings occurred, the U.S. statements reinforced market expectations for a de-escalation of tensions. EIA data showed that U.S. crude oil inventories fell by 3.8 million barrels last week to 408.4 million barrels, the lowest level since September 2018, driven by rising domestic refinery demand ahead of the July 4th Independence Day holiday weekend. In the second quarter, Brent crude prices fell by approximately $45 per barrel, marking the largest quarterly decline since the 2008 global financial crisis. Similarly, WTI prices fell by about $31 per barrel, the largest quarterly drop since 2020. Currently, as U.S.-Iran negotiations continue to advance, the marginal impact of geopolitics is diminishing, and oil prices are expected to continue fluctuating within a range.
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