Crude oil prices were largely unchanged in thin trading, as the resumption of petroleum shipments from the Persian Gulf created new oversupply in a key region of the global market.
A survey indicates that OPEC's crude oil production increased by 2.34 million barrels per day in June, as member states in the Gulf resumed exports via the Strait of Hormuz. The main contributors to this increase were Kuwait, Saudi Arabia, and Iran. Saudi exports have surged to 90% of their pre-conflict levels, with the United Arab Emirates showing a similar rebound. Iraq, one of the nations hardest hit by the crisis, is finally showing signs of recovery. Concurrently, a significant volume of Iranian crude oil is accumulating at sea.
Simultaneously, the United States and Iran have held constructive talks in Qatar, aiming to transform a temporary 60-day ceasefire into a lasting resolution.
Brent futures hovered just above $72 per barrel, while West Texas Intermediate (WTI) traded below $69. Trading activity was subdued due to the US Independence Day holiday. Both major benchmark crudes have erased their war-time gains and recorded their largest quarterly declines since 2020.
The Brent front-month spread has been in a bearish contango structure for most of this week, where the front-month contract trades at a discount to later months, indicating an oversupplied market. Analysts at Citigroup project that the global benchmark could fall further to around $60 per barrel by year-end.
"With the Strait of Hormuz disruptions fading, fundamentals are quickly reasserting dominance," while "shipping flows are normalizing," analysts including Francesco Martoccia and Eric Lee at Citigroup wrote in a July 2 report. "We continue to recommend selling into any summer rally, expecting Brent to reach $60-$65 per barrel around year-end."
On another note, technical indicators suggest the selling pressure may have run its course. The 14-day Relative Strength Index for Brent has dipped below 30, signaling that futures may be oversold.
"The US-Iran negotiation process remains fragile, with disputes over management and transit fees for the Strait of Hormuz persisting," the Citigroup analysts noted.
In a recent interview, former US President Donald Trump stated that negotiations with Iran are ongoing, claiming Iran had "pretty much agreed to everything we needed."
Informed sources reported that diplomats proposed unfreezing billions of dollars of Iranian funds held overseas in exchange for Tehran relinquishing its claims and fee rights over the Strait of Hormuz, but Iran has not conceded.
Brent crude for September delivery rose 0.4%, settling at $72.12 per barrel.
WTI crude for August delivery was at $68.78 per barrel.
Futures markets did not have a formal settlement on Friday due to the US holiday.
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