Oil prices recorded their largest single-day decline since the Russia-Ukraine conflict, with WTI crude falling sharply by up to $26 from Tuesday's high. European and U.S. oil prices quickly retreated to around $90 per barrel following the ceasefire announcement, while China's SC crude fell back to the 600-yuan mark. However, the situation became more complex during the evening session. Israeli strikes against Lebanon's Hezbollah emerged as a point of conflict, while attacks on oil facilities in the Middle East continued. Conflicting statements regarding the Strait of Hormuz further complicated matters, casting significant doubt on whether the ceasefire would proceed smoothly.
The two-week ceasefire agreement between the U.S. and Iran surprised markets and rapidly cooled oil prices, with both sides claiming victory. Driven by ceasefire expectations, oil prices fell by over $20, with the drop to $90 per barrel largely pricing in this development. Markets will now focus on progress in U.S.-Iran ceasefire negotiations. Available information indicates that after the U.S. agreed to Iran's ten-point proposal as a basis for negotiations, Iran consented to ceasefire talks in the final stage. However, most elements of Iran's proposal appear unacceptable to the U.S., creating clear doubts about negotiation prospects. Some speculate this could be a U.S. tactic to mislead Iran, particularly since Iran has explicitly stated that while it agrees to talks, it maintains complete distrust of the U.S. and remains prepared to respond forcefully to any attacks. Both sides have shown willingness to cease hostilities after prolonged conflict, making a negotiated settlement possible through mutual concessions, though the probability currently remains low.
The potential passage of 187 fully-loaded tankers in the Persian Gulf (carrying approximately 172 million barrels of crude and refined products) through the Strait of Hormuz under a ceasefire agreement could significantly alleviate Asia-Pacific energy shortages in the short term. Initial signs of ship movement appeared in the Strait following Wednesday's ceasefire announcement and temporary reopening of the strategic waterway for negotiations. However, markets remain cautious, as the resumption of transit by a few vessels contrasts sharply with hundreds still stranded. Market participants will closely monitor whether transit numbers continue to increase, which would indicate whether the ceasefire is translating into sustainable normalization of navigation. This will directly determine the pace of energy supply chain recovery and the extent of risk premium reduction. Reports emerged Wednesday that following the ceasefire declaration, the Iranian navy informed ships near the Strait of Hormuz that transit still required Iranian authorization. According to Iran's Fars News Agency, oil tankers transiting the Strait were intercepted after Israel "violated the ceasefire agreement," causing European and U.S. oil prices to briefly rise by $2. This clearly demonstrates Iran's reluctance to relinquish control over the Strait.
Although both sides agreed to ceasefire talks on Friday, their firm positions and significant differences suggest doubtful negotiation prospects. Near-term geopolitical risks have noticeably cooled, with Middle East crude spot premiums plunging and Dubai spreads hitting one-month lows. The pullback to $90 per barrel appears to reasonably reflect reduced geopolitical premiums. Investors will likely maintain a wait-and-see approach absent clear signs of negotiation breakdown. However, any significant obstacles in talks could quickly revive geopolitical premiums and push prices higher again. From a medium-to-long-term perspective, continuous wartime damage has already disrupted crude market supply. Even if a ceasefire is achieved, market recovery will require considerable time. According to the EIA's Short-Term Energy Outlook, crude markets will maintain tight supply through 2026, with particularly noticeable shortages in the second quarter. Sustained sharp declines in oil prices appear unlikely in the near term. Prices are expected to remain volatile within a high range, with recent sharp declines potentially creating buying opportunities. During this high-volatility period, significant uncertainty persists, warranting enhanced risk control and cautious participation.
Daily Market Movements: WTI crude futures fell $18.54, or 16.41%, to settle at $94.41 per barrel. Brent crude futures declined $14.52, or 13.29%, to close at $94.75 per barrel. INE crude futures dropped 4.41% to 635.1 yuan.
The U.S. dollar index fell 0.62% to 99.03. The Hong Kong Exchange USD/CNY rate declined 0.83% to 6.7952. The U.S. 10-year Treasury yield rose 0.04% to 111.2. The Dow Jones Industrial Average gained 2.85% to close at 47,909.92.
Recent Developments: Iran's navy informed ships near the Strait of Hormuz on Wednesday that transit still requires Iranian authorization. Audio shared by a crew member stated: "All vessels must obtain permission from Iran's Islamic Revolutionary Guard Corps Navy to pass through the Strait. Any unauthorized transit attempts will be destroyed." This message was broadcast via radio. The U.S. President stated he agreed to suspend strikes against Iran for two weeks conditional on the Strait being "fully, immediately, and safely" reopened. The Iranian government signaled its intention to maintain influence over the waterway. According to photos and videos shared by crew members, fighter jets remained active over the Persian Gulf, with most ships still anchored.
The Norwegian Shipowners' Association stated Wednesday that the two-week U.S.-Iran ceasefire agreement hasn't provided sufficient clarity for Norwegian vessels to resume transit through the Strait of Hormuz. The association, representing 130 companies operating approximately 1,500 vessels globally, noted that security uncertainties persist in the Gulf region, with shipowners seeking more information. CEO Knut Arild Hareid commented: "We note the ceasefire signal, but the situation in the Strait of Hormuz remains unresolved and unpredictable." Disruption at this critical global maritime choke point has forced shipping companies to suspend voyages, reroute cargo, and rely on high-cost alternatives to maintain Gulf region transportation. Hareid emphasized that safe transit conditions remain unclear, with shipowners assessing the situation and likely to resume operations only with genuine security assurances. Similarly, Danish Maersk, one of the world's largest container shipping companies, stated that the ceasefire declaration alone doesn't provide enough certainty to normalize operations. Market optimism about geopolitical easing has quickly faded due to the lack of verifiable security commitments, leading shipping companies to maintain caution rather than risk returning to high-risk waters.
Middle East crude spot premiums plummeted Wednesday after the U.S. President announced the two-week ceasefire agreement with Iran, with Dubai spreads hitting one-month lows. Oman and Murban premiums fell to approximately half their previous session levels, while global benchmark Brent futures dropped below $100 per barrel. In spot trading, cash Dubai's premium to swaps declined $14.59 to $14.39 per barrel, with transactions occurring between $99 and $101.20 per barrel among multiple traders. Iranian Foreign Minister Abbas Araghchi stated that Iran would cease attacks if attacks against it stop, and that safe transit through the Strait of Hormuz would be possible within two weeks following coordination with Iranian armed forces. The market had previously priced in risks of prolonged conflict and high oil prices, with the ceasefire news triggering substantial position unwinding. The rapid collapse in premium structure reflects concentrated withdrawal of speculative long positions. Future focus will center on actual transit volumes and crude flow restoration during the two-week ceasefire period. If Strait passage remains subject to Iranian authorization mechanisms, the current premium reduction may represent an overreaction, creating potential for correction.
The U.S. Energy Information Administration (EIA) stated in its latest Short-Term Energy Outlook that even if the Strait of Hormuz reopens, global fuel prices may maintain upward momentum in coming months. This assessment contrasts with previous optimistic statements about immediate post-conflict price declines. Notably, Iranian Foreign Minister Araghchi stated Wednesday that safe transit through the Strait would be possible within two weeks following coordination with Iranian armed forces and consideration of technical limitations. However, Iranian media emphasized that negotiations with the U.S. don't signify war's end. The military conflict between the U.S.-Israel and Iran has entered its second month, with Iran's blockade of the Strait of Hormuz (a vital passage for approximately one-fifth of global oil and gas transportation) driving sustained surges in global energy prices. While repeated attempts have been made to address public dissatisfaction with high prices by characterizing them as temporary, the EIA's latest data reveals a more challenging reality.
The EIA significantly raised its price forecasts, increasing its 2024 average global benchmark Brent spot price projection from $78.84 to $96 per barrel, a 22% upward revision. The report emphasized that restoring Strait flows won't occur immediately, with logistics reactivation and Middle East oil producers returning to normal output levels requiring months even after conflict resolution. The EIA noted that since Strait closures haven't occurred previously, the reopening process remains uncertain. Due to persistent supply disruption uncertainties, crude prices will maintain "risk premiums" throughout the forecast period, unlikely to return to pre-conflict levels. Affected by energy shortages and various national austerity and emission reduction policies, the EIA halved its 2024 global oil demand growth forecast from 1.2 million to 600,000 barrels per day. The report specifically noted that demand declines will concentrate particularly in Asian regions heavily reliant on Middle East crude supplies. Although the EIA expects global oil demand to rebound by 1.6 million barrels per day next year as supply flows normalize, global energy markets will still experience a painful "long-tail recovery period" under the shadow of blockade impacts.
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