Oil prices managed to close higher on Thursday, likely bringing a sense of relief to many investors who had taken long positions. The past week has been a challenging period for the market.
After briefly dipping below the $70 per barrel mark, West Texas Intermediate crude saw some short-covering as profit-taking emerged, leading to a technical rebound from oversold conditions. This occurred against a backdrop where China's domestic industrial commodities index had experienced a rare nine consecutive days of declines, a situation not seen in several years, indicating a broad and unexpectedly sharp weakening across the commodity complex. The recent steep drop in oil prices unfolded within this context, with market sentiment deteriorating alongside the decline, becoming increasingly pessimistic. A clear sign of this weak sentiment was the market's apathy towards bullish news. For instance, Wednesday's EIA data showed U.S. crude inventories hitting multi-decade lows, with Cushing stockpiles falling below the 20-million-barrel depletion line for the first time since 2015. Even such supportive data failed to attract significant buying interest for a rebound, as market focus remained fixed on the reopening of the Strait of Hormuz and the progress of supply recovery. Estimates indicate that over a three-day period ending Wednesday, crude oil shipments from the Persian Gulf region approached 13 million barrels per day, recovering to at least 75% of pre-conflict levels. However, this recovery is seen as an initial, easier-to-achieve phase. The sustainability of the strait's reopening remains uncertain, with Iran warning vessels against using unauthorized routes. Reports on Thursday of ships being attacked by unidentified aerial objects in the Strait of Hormuz also contributed to the price rebound.
The rapid decline in oil prices to around $70 has significantly lowered the market's future price expectations. Concerns about renewed oversupply due to increasing production have been a dominant theme recently. The market now requires time to assess the impact of this supply growth on the supply-demand balance following the strait's reopening. Similarly, the recovery in demand following the price drop needs further observation. While the topic of declining inventories has not yet driven market action, this factor remains a tangible reality. If market panic, which has been largely priced in during the sharp sell-off, subsides and sentiment stabilizes, the oil market could stage an oversold rebound. In such a scenario, inventory levels are expected to become a key bullish factor. Both the supply and demand sides of the crude oil market face a significant adjustment gap of several million barrels per day. The actual pace of recovery will influence investor expectations, but this will take time to become clear. After an initial wave of selling pressure pushed prices sharply lower, a difficult stabilization and modest gain was achieved. The market now appears likely to enter a phase of technical rebound and consolidation from oversold levels. Investors should pay close attention to market rhythm and participate with caution.
Daily Market Movements
The front-month WTI crude oil futures contract settled up $1.58, or 2.25%, at $71.92 per barrel. The front-month Brent crude futures contract gained $1.63, or 2.21%, to settle at $75.50 per barrel. INE crude oil futures rose 2.29% to close at 478.7 yuan per barrel.
The U.S. Dollar Index fell 0.12% to 101.46. The Hong Kong Exchange's USD/CNH rate declined 0.18% to 6.7668. The U.S. 10-Year Treasury note yield rose slightly, with the price up 0.04% at 110.06. The Dow Jones Industrial Average advanced 0.14% to close at 51,920.62.
Key Recent Developments
Singapore Oil Product Inventories Rebound to One-Month High, All Categories Hit Four-Week Peaks
Onshore oil product inventories in Singapore rose to approximately 42.19 million barrels in the week ending June 24th, a 20% increase from the previous week, which had hit a 13-year low. Inventories for light distillates, residual fuel oil, and middle distillates all reached four-week highs.
Total gasoline exports for the week were about 1.145 million tons, significantly exceeding imports of roughly 266,000 tons. South Korea was the largest recipient, taking about 1.077 million tons, followed by Indonesia with about 242,000 tons. Naphtha inventories increased as arrivals, including about 183,000 tons from Russia, outpaced exports.
No imports of Middle East naphtha and fuel oil were recorded this week. However, market sources anticipate a gradual recovery in supplies as the Strait of Hormuz reopens. Residual fuel oil stocks surpassed 20 million barrels for the first time since late May, jumping 35.4% week-on-week to 20.30 million barrels.
Total imports grew 47% to about 760,000 tons, with South Korea being the primary source at about 130,000 tons, and Brazil the second-largest. Indonesia continued sales via regular tenders. Total fuel oil exports fell 15% to about 356,000 tons. Middle distillate inventories increased by approximately 3%, while diesel exports plunged 57%, with most shipments headed to Australia.
Persian Gulf Crude Exports Bounce Back to 75% of Pre-Conflict Levels, But Strait of Hormuz Faces Turbulence
One week after the U.S.-Iran temporary peace agreement was signed, crude oil exports from the Persian Gulf have recovered to at least 75% of pre-conflict levels. However, this represents only an initial, easier-to-achieve phase of recovery. Data estimates show that over a three-day period ending Wednesday, crude shipments from the region approached 13 million barrels per day, with the majority coming from previously stranded cargoes. Iran and other relevant nations have begun clearing this backlog. While the current export volume is about 40% higher than the average for the first half of June, a core question for the industry is whether this recovery can be sustained long-term and how many tankers will be willing to return to Gulf waters to restore normal trade flows. As the U.S. and Iran continue to finalize agreement details, full clarity may take several more weeks. Additionally, the presence of vessels operating with transponders off, or "dark ships," persists, making accurate tallies of actual post-agreement exports difficult. U.S. official estimates of export volumes are significantly higher than market calculations. The reopening of navigation through the Strait of Hormuz is unlikely to proceed smoothly. A British maritime agency reported on Thursday that it had received reports of ships being attacked by unidentified aerial objects in the strait. Several hours prior, multiple cargo ships had attempted to traverse the waterway but turned back mid-journey.
A report from S&P Global Commodity Insights on the 25th stated that 78 vessels transited the Strait of Hormuz on the 24th, setting a single-day record since the outbreak of the Iran conflict. The average daily vessel traffic through the strait this month has recovered to about 57% of pre-conflict levels. The report noted that 551 vessels had passed through the strait by the 24th, making this month likely to have the highest traffic volume since the conflict began. The report indicated that recent vessels leaving the strait included not only those stranded long-term due to the conflict but also recently arrived ones, reflecting initial signs of normalized shipping activity. However, it remains to be seen whether the upward trend in traffic can be sustained, as the relevant agreements require further consolidation and implementation.
Iran Considers Fees for Hormuz Transit, Potential Annual Revenue of $40 Billion
According to informed officials, Iran estimates that charging fees for security, safety, and environmental services in the Strait of Hormuz could generate $40 billion in annual revenue for the relevant countries. If implemented, this would provide Tehran with financial resources and control it lacked before the conflict. The officials said Iran's regime is drawing on models from around the world, including the Dardanelles Strait, where Turkey levies a tax called the "golden franc" on ships transiting to and from the Aegean Sea to cover passage fees through the international waterway. To gain support, Tehran is reportedly promoting this idea to countries across the broader Middle East and beyond. They indicated that Iran hopes its Persian Gulf neighbors will also join the arrangement and share in the revenue. During a visit to Oman on Tuesday to discuss the proposed arrangement with neighboring countries, Iran's Parliament Speaker, Mohammad Bagher Ghalibaf, stated that everyone needs to understand that the management of the strait will never return to how it was before.
Iraq Oil Ministry Denies Considering OPEC Exit
On the 25th, a report cited an Iraqi oil ministry official stating that the government was "considering all viable options, including exiting the Organization of the Petroleum Exporting Countries (OPEC)," if its oil production quota was not significantly increased. In response, the Iraqi Oil Ministry issued a statement the same day, clarifying that reports about Iraq considering an OPEC exit do not represent the official position of its government, and that neither the Prime Minister nor the government had discussed leaving OPEC. The statement emphasized that crude production quotas should be reassessed based on the sustainable production capacity of each OPEC member country. This position aligns with agreements approved by all relevant nations and understandings regarding Iraq's security and economic conditions.
As one of OPEC's five founding members and the organization's original birthplace in Baghdad, Iraq's stance carries symbolic weight. Currently the second-largest producer within OPEC, any change in its membership status could impact the group's stability.
A senior Iraqi oil ministry official told Reuters that Iraq is facing severe fiscal pressure due to the Iran conflict, making its request for a higher quota "a matter to be taken seriously." He also stressed that while the government has evaluated the possibility of leaving OPEC, it currently prefers to remain a member and negotiate for a larger quota.
The official stated, "Saudi Arabia and other OPEC allies should take this matter with the utmost seriousness. If not, Iraq will have to consider all viable options." However, when asked if formal discussions about exiting had taken place, he responded, "It is still too early to take such a step."
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