On June 23, the price of WTI crude oil fell to $72.32, marking its lowest point in nearly three and a half months. The conflict between the US and Iran, which began on February 28, saw WTI initially drop to a low of $65.21. It later surged to a peak of $112.95 on April 7 during the height of tensions. Following the signing of a memorandum of understanding on June 17, which established a 60-day negotiation period, the price has continued to decline. If this downward trend persists, all gains made during the US-Iran conflict could be erased.
Key Data Release
The EIA crude oil inventory data is scheduled for release on Wednesday at 22:30. The previous figure showed a draw of 8.263 million barrels, while the forecast is for a draw of 4.995 million barrels. For the past eight weeks, EIA data has consistently shown negative inventory figures, indicating a significant supply deficit relative to demand. This situation was primarily caused by the US-Iran conflict, which led to the closure of the Strait of Hormuz, disrupting oil exports from the Gulf region. Consequently, the US has had to shoulder a larger share of global supply.
Strait of Hormuz Situation
Since the signing of the US-Iran memorandum, the reopening of the Strait of Hormuz has been progressing gradually. Currently, both the western side controlled by Iran and the eastern side controlled by the US are permitting commercial vessel passage. However, the daily number of transiting vessels is only around 55, compared to a normal level of approximately 125. Furthermore, over 400 commercial vessels remain queued on the eastern side of the strait awaiting passage.
The main obstacles to free navigation are no longer primarily geopolitical but rather practical issues. For instance, mines laid by Iran during the conflict have not been fully cleared. Additionally, the cost of insurance for tankers has skyrocketed to between 1% and 4% of the vessel's value, which is significantly impacting the confidence of ship owners.
Inflation and Price Correlation
A comparative chart shows the relationship between the US core CPI annual rate and the price of WTI crude. WTI reached a cyclical high on May 30, 2022, while the core CPI annual rate peaked in September 2022. This comparison suggests a four-month lag between energy price increases and their impact on US inflation. Given that WTI reached a cyclical high during the US-Iran conflict in March, it implies that the US core CPI annual rate may not peak and begin to decline until July, four months later.
Monetary Policy Impact
The latest Federal Reserve interest rate decision maintained the upper bound at 3.75%. However, the dot plot indicates a potential rate hike early next year. The existence of this expectation is likely to continue supporting the US dollar index, thereby exerting downward pressure on precious metals and international oil prices. Although this effect may not be as direct or pronounced as that of the US-Iran conflict, its long-term influence should not be underestimated.
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