Oil prices edged slightly higher after a day of volatile trading on Wednesday, pausing their recent advance. The market has already priced in a significant risk premium from the ongoing U.S.-Iran conflict, and with prices having rebounded into a resistance zone, a period of consolidation and observation has begun. The strengthening contango in futures and the historically high product crack spreads reflect the fresh supply-side jolt from the geopolitical situation. In response to the renewed oil price strength, former U.S. President Donald Trump once again attempted to guide market expectations, stating that oil would fall to $55 per barrel once the situation with Iran stabilizes.
The U.S. continued its strikes against Iran on Wednesday, actions aimed at further degrading Iran's military capabilities for attacking commercial shipping in the Strait of Hormuz. However, the market's reaction to these strikes is diminishing, as this scale of action is no longer sufficient to drive investors to price in a higher risk premium. Some U.S. media reported that Trump is inclined to escalate military action against Iran, with options including seizing Kharg Island. The market is now watching to see if the U.S. will escalate its strikes to include such actions or target key infrastructure like bridges and power plants in Iran. A sustained price rally to challenge higher resistance levels would likely require these more severe scenarios, potentially involving attacks on oil facilities in Gulf countries.
The struggle for control over the Strait of Hormuz continues. Judging from statements from both sides, limited strikes are merely a tactic, with negotiation remaining the ultimate goal. Iran has stated it has never left the negotiating table but currently has no plans for talks, focusing instead on defense. Iran asserts that it was the U.S. that tore up the JCPOA and that Iran will absolutely not be the first to bow and request negotiations. Iran's Parliament Speaker Mohammad Bagher Ghalibaf stated that negotiation at this stage is not equivalent to compromise; like war, it is part of a resistance strategy to protect national interests. Trump recently threatened that if Iran refuses to return to the negotiating table, the U.S. military would expand its targets next week to include civilian infrastructure like bridges and power plants. Interestingly, U.S. Vice President J.D. Vance stated he is "one hundred percent certain" that people within the Israeli government are trying to get the U.S. to change its policy because they want military action to continue. "We know for a fact that there are people inside that government who are manipulating and trying to change American public opinion so that the war goes on indefinitely. Again, not for any objective, just to fight indefinitely." On the supply and demand front, despite the Strait of Hormuz blockade, crude oil outflows continued this week, with third-party assessments varying between 300,000 and 750,000 barrels per day. EIA data showed a continued draw in U.S. crude inventories. After the recent surge, oil prices are now consolidating. Whether they can advance further, and the pace and extent of any rebound, will depend on developments in the geopolitical arena. Chasing the rally at current levels requires caution. Pay close attention to market rhythm and participate carefully.
Daily Market Movements
1. WTI crude oil futures rose $0.26, or 0.33%, to settle at $79.6 per barrel. Brent crude futures gained $0.22, or 0.26%, to settle at $84.95 per barrel. INE crude futures fell 0.23% to 512.1 yuan.
2. The U.S. Dollar Index fell 0.41% to 100.51. The Hong Kong Exchange USD/CNH rate fell 0.12% to 6.7444. The U.S. 10-Year Treasury yield rose 0.3%, with the price at 109.23. The Dow Jones Industrial Average gained 0.29% to 52,658.64.
Recent Key Developments
1. Trump Threatens to Strike Iranian Bridges and Power Plants to Pressure Return to Talks
In an interview with Fox News on the 14th, former U.S. President Donald Trump stated that unless Iran returns to the negotiating table, the U.S. military will strike its bridges and power plants next week. Trump said, "We are going to hit them hard tomorrow night and the next night, and by next week, it's going to be very bad for them because next week the targets will be bridges and power plants. Unless they sit down to negotiate, we will destroy all their bridges and power plants." Trump claimed that U.S. negotiators spoke with Iranian officials on the 14th, telling them they should make a deal, otherwise "you will cease to exist." Trump said U.S. military strikes on Iran would continue "until I say enough." He stated Iran's strength has been severely weakened but it still has the ability to resist, likening Iran to a "great boxer" where "you think you've beaten him, and then he suddenly counterattacks and hits you with a heavy punch." Trump also did not rule out the possibility of sending ground troops to Iran, though he did not elaborate further.
2. Trump's 24-Hour Policy Reversal: Strait of Hormuz Toll Proposal Scrapped, Shift to Gulf Investment for Security
a) Approximately 24 hours after announcing a proposal to impose a 20% transit fee on shipping through the Strait of Hormuz, Trump swiftly withdrew the plan, instead seeking trade and investment agreements with Gulf countries. This sharp policy reversal has drawn market attention.
b) The White House stated the new approach stemmed from "productive conversations" with Middle Eastern leaders, aiming to replace transit fees with large-scale investments from Gulf states into the U.S., while maintaining pressure on Iranian shipping to ensure unimpeded international passage.
c) The earlier toll proposal faced widespread criticism due to the Strait of Hormuz's status as an international waterway, with experts generally agreeing no single nation has the right to unilaterally impose such fees.
d) The adjusted strategy shifts focus from collecting transit fees to securing economic commitments from Gulf partners like Saudi Arabia, the UAE, and Qatar, reportedly closely linked to recent U.S. consultations with regional leaders.
e) Oil prices showed a muted reaction to the reversal, briefly spiking in early trading before largely stabilizing. However, the policy volatility itself has added fresh uncertainty to shipping and energy trade through the world's most critical maritime chokepoint.
3. Naphtha Prices Hold Firm Near Two-Month Highs as Strait of Hormuz Supply Fears Simmer
a) Asian naphtha prices remained firm on Wednesday, with premiums rising further. Traders noted that attacks between the U.S. and Iran have heightened market concerns about supply disruptions through the Strait of Hormuz.
b) Naphtha's refining margin relative to Brent crude hovered near a two-month high of around $185 per ton. This week, Indian exporters sold cargoes for late-July loading at a premium exceeding $100 per ton.
c) However, light distillate stocks at the Fujairah trading hub rose to a five-week high of 1.77 million barrels, indicating some local accumulation, though this did not reverse the overall bullish sentiment.
d) Gasoline market crack spreads held steady around $21 per barrel, keeping refinery margins in a healthy range.
e) The shutdown of Russia's Salavat petrochemical plant following a Ukrainian drone attack has added further disruption to the product supply side, suggesting the naphtha market's supply-demand balance will remain tight in the near term.
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