News reports indicate that indirect talks between the US and Iran in Doha have concluded with no progress. Iran insists on implementing a memorandum of understanding and releasing approximately $6 billion in frozen funds before entering final negotiations, with Qatar acting as the sole mediator. The next meeting is expected after July 9th. Traffic through the Strait of Hormuz has recovered following weekend attacks, with last week's volume reaching its highest level since the conflict began. The UAE's crude and condensate exports hit a record 3.7 million barrels per day in June. However, the UKMTO has raised the maritime security threat level for the Strait. Morgan Stanley forecasts a global implied supply surplus of 4.8 million barrels per day by 2027.
International oil markets declined overnight. WTI crude settled at $67.81 per barrel, while Brent crude closed at $71.05 per barrel. The lack of progress in Doha talks, combined with the ongoing return of supply, pressured prices, though losses were limited. For the month, WTI fell approximately 19% in June, and Brent dropped about 20%, marking the third consecutive monthly decline. For the second quarter, WTI fell roughly 24% to 30%, its largest quarterly decline since 2020. The overnight closing price for the main SC crude futures contract was 456.7 yuan per barrel.
Supply Side Developments
The trend of supply recovery remains unchanged, with Gulf exports continuing to rise. Last week's traffic through the Strait of Hormuz reached its highest level since the conflict began. The UAE's record June exports of 3.7 million barrels per day, increased production from Middle Eastern producers, and the US-sanctioned release of Iranian oil volumes are all contributing to a loosening supply picture. However, following weekend attacks, the UKMTO has raised the security threat level for the Strait. Iran insists on managing Strait traffic and rejects Omani involvement, indicating that security preconditions remain unstable, and the full resumption of shipping remains constrained by geopolitical disruptions.
Demand Side Analysis
Overall demand remains weak. Chinese demand continues to be poor, with state-owned refinery runs recovering only marginally, hampered by sluggish domestic demand and high inventories. Demand in Asia-Pacific nations like Japan and South Korea is expected to recover as Strait traffic resumes. In the Middle East, the summer peak for power generation fuel use conservatively suggests a quarterly demand increase of about 500,000 barrels per day in Q3. The EIA has revised its 2026 global demand forecast from growth to a decline of about 1.1 million barrels per day. Combined with Morgan Stanley's projection of a 4.8 million barrel per day surplus by 2027, the medium-term demand outlook appears weak.
Inventory and Market Structure
Regarding inventories, Cushing and total US inventories remain at extremely low levels. UBS notes that the market has not fully cleared the risk premium. However, the return of previously stranded vessels to circulation is providing a temporary influx of new supply. In terms of market structure, the Brent front-month spread is flattening as shipping resumes. Domestically, SC crude futures continue to trade at a discount to international benchmarks, primarily due to high domestic inventories, weak demand, the withdrawal of speculative capital, and structural shifts in demand. This divergence in strength between domestic and international markets persists.
Summary and Outlook
The Doha talks have stalled, with Iran refusing direct negotiations with the US and insisting on implementing the memorandum first, leading to a slight pullback in oil prices. The second quarter recorded the largest quarterly decline since 2020. The return of supply remains the dominant theme, with Gulf exports rising and UAE exports hitting a record, reinforcing medium-term expectations of a supply surplus. However, the negotiation deadlock, the heightened security threat level in the Strait, and the incomplete clearing of the risk premium provide underlying support and room for price volatility. The short-term market will be driven by progress in Doha mediation and the pace of Strait traffic, with the core focus remaining on whether the MOU is implemented and the ceasefire holds.
Trading Strategy
Maintain a wait-and-see approach. The market is caught between stalled negotiations and returning supply. The risk premium has not been fully cleared, and the medium-term bias is bearish. With two-way volatility likely, clear directional catalysts are lacking.
Key Risk Factors
Should Doha mediation break down, the US and Iran resume mutual attacks, or Iran restricts Strait traffic, the risk premium could quickly rebuild, leading to a market rebound. Conversely, if the memorandum is implemented, frozen funds are released to advance negotiations, and Strait traffic resumes faster, reinforcing surplus expectations, prices could decline further towards pre-conflict lows.
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