The first trading day of the second half saw oil prices continue their downward trajectory, hitting new lows for the current correction, a performance signaling deep pessimism regarding future price prospects.
Attempts to stage a rebound over recent sessions have been unsuccessful, with expectations of a supply surplus maintaining their dominance over the market.
Crude oil market time spreads have continued to weaken, while refined product crack spreads at the other end have kept reaching new highs.
This contradictory situation of upstream loosening and downstream tightness is becoming increasingly extreme.
While efforts have successfully brought crude prices back to pre-conflict levels, refined product prices in Europe and America remain relatively elevated.
Recent record-breaking heatwaves across Europe have further boosted energy consumption demand.
The evening's EIA data showed a continued drawdown in crude inventories, though the rate of decline slowed.
Following the data release, oil prices maintained their weak performance.
With the Strait's opening allowing a significant volume of crude to compete for market share, prices are being persistently pressured lower.
As long as the Strait of Hormuz remains open, expectations for a surplus continue to strengthen.
Iran has indicated that the core issues in the indirect U.S.-Iran talks in Doha involve the unfreezing of Tehran's assets and matters concerning the Strait of Hormuz.
Iran insists on permanent control over the Strait.
Under the June 17 provisional agreement, Iran agreed to a 60-day toll-free period, but Tehran interprets the wording as allowing it to retain control over vessel eligibility and routing, planning to seek long-term formal recognition of this control after the temporary phase ends.
Iran's negotiator stated that no progress will be made on other contentious areas in the peace talks until agreement is reached on the control issue.
If the provisional agreement is not extended upon expiry, Iran will reinstate tolls in mid-August, though specific rates and implementation methods have not been announced.
With WTI falling below the $70 per barrel mark, Brent crude is also moving towards the $70 level.
China's SC crude, where demand decline has been pronounced, has fallen below 450 yuan, approaching its price level at the start of the year and hitting a five-year seasonal low.
This situation is occurring in the early stages of supply recovery following a conflict that removed a significant volume of oil from the market.
It serves as a reminder that market assessments and pricing are often based on sentiment and expectations, though the market's strong self-correcting ability suggests that as prices settle at lower levels and volatility subsides, a more rational pricing will eventually emerge as the situation clarifies.
Market participants are advised to carefully manage their timing and exercise caution.
Daily Market Movements
WTI crude futures fell by $0.92, or 1.32%, settling at $68.58 per barrel.
Brent crude futures dropped by $1.38, or 1.89%, to settle at $71.57 per barrel.
INE crude futures declined by 3.43%, closing at 444.6 yuan.
Key Developments
The EIA report for the week ending June 26 showed a decrease of 3.775 million barrels in commercial crude inventories, excluding strategic reserves, to 408 million barrels, a 0.92% drop.
U.S. Strategic Petroleum Reserve (SPR) stocks fell by 5.536 million barrels to 325.7 million barrels, a 1.67% decrease.
The crude draw of 3.775 million barrels was smaller than the expected 4.466 million barrel draw and the previous week's draw of 6.088 million barrels.
Cushing, Oklahoma, inventories increased by 709,000 barrels, following a prior draw of 1.077 million barrels.
Heating oil inventories fell by 310,000 barrels, after a prior build of 722,000 barrels.
Distillate fuel inventories rose by 2.483 million barrels, against an expected draw of 513,000 barrels, following a prior build of 3.064 million barrels.
Gasoline inventories decreased by 2.333 million barrels, exceeding the expected draw of 1.021 million barrels, after a prior build of 2.064 million barrels.
U.S. domestic crude oil production decreased by 9,000 barrels per day to 13.81 million barrels per day for that week.
U.S. crude oil imports averaged 5.279 million barrels per day, down by 291,000 barrels per day from the previous week.
U.S. crude oil exports decreased by 661,000 barrels per day to 4.008 million barrels per day.
U.S. petroleum product supplied over the last four-week period averaged 20.638 million barrels per day, up 1.73% compared to the same period last year.
Saudi Arabia Unusually Sells Spot Crude to Asia, Boosting Gulf Exports
According to informed traders, Saudi Arabia is increasing its oil shipments from the Persian Gulf region, having sold at least 6 million barrels of spot crude to Asian customers including South Korea and Japan, to be transported by three very large crude carriers.
Such spot sales are highly unusual, as Saudi Aramco typically sells crude only to long-term contract buyers based on its monthly official selling prices.
This move reflects Middle Eastern producers' eagerness to release pent-up supply following the easing of tensions in the Strait of Hormuz.
Saudi Arabia has resumed loading operations at its key Ras Tanura export facility, with producers across the region synchronously raising output, leading to a significant drop in regional crude prices.
The purchased volumes will count towards customers' annual contractual offtake agreements with Saudi Aramco, indicating the spot sales serve more as a volume adjustment tool rather than a shift in pricing mechanisms.
Attention is now on whether other Gulf producers will follow with similar actions.
Sources indicate that OPEC+ may once again raise its August oil production target.
Three sources stated on Wednesday that OPEC+ producers are expected to agree to a further increase in the August production target at their meeting this Sunday, which would add oil supply as the Strait of Hormuz gradually reopens and prices fall.
The sources noted the August target increase would be around 188,000 barrels per day, matching the increases for June and July.
OPEC has not commented on this matter.
Iran Insists on Permanent Control of Strait of Hormuz, U.S.-Iran Stance Confrontation Heightens Conflict Risk
Two senior Iranian sources revealed that Tehran is determined to secure international recognition of its control over the Strait of Hormuz and asserts the right to levy fees on vessels transiting the Gulf, even if achieving this requires the use of force.
Under the June 17 provisional agreement, Iran agreed to a 60-day toll-free period, but Tehran interprets the wording as allowing it to retain control over vessel eligibility and routing, planning to seek long-term formal recognition of this control after the temporary phase ends.
Iran's negotiator stated that no progress will be made on other contentious areas in the peace talks until agreement is reached on the control issue.
If the provisional agreement is not extended upon expiry, Iran will reinstate tolls in mid-August, though specific rates and implementation methods have not been announced.
The U.S. position is clearly opposed, with the President stating that no tolls will be levied on Strait transit unless Washington decides otherwise, and the Secretary of State emphasizing during meetings with Gulf states that no country has the right to obstruct or charge for passage through international waterways.
Iran fired upon four vessels last weekend that attempted to transit the strait from the Omani side without Iranian authorization, leading to a brief, intense exchange of fire with U.S. forces.
Sources indicate Iran believes this event has presented a "historic opportunity" and will not back down even at the risk of escalating conflict with the United States.
Analysts warn that Iran may be overestimating its leverage and misjudging Washington's willingness to concede, as both sides do not consider themselves defeated, making the risk of renewed conflict higher than the market anticipates.
The Strait of Hormuz is designated as an international strait under the UN Convention on the Law of the Sea, though neither the U.S. nor Iran are parties to that convention.
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