Brent Returns to Pre-Iran War Levels
Oil prices moved relatively flat on Tuesday (June 30th), but remained on track for their biggest monthly and quarterly declines since the start of the Covid-19 pandemic in 2020. Investors are eyeing the prospect of talks between the United States and Iran in Doha, amid a fragile ceasefire.
Brent oil fell 23 cents, or 0.3%, to close at US$72.92 per barrel. Meanwhile, West Texas Intermediate, or WTI, fell US$1.25, or 1.8%, to US$69.50 per barrel. The August Brent contract expires on Tuesday and will be replaced by the September contract, which is trading around US$73.31 per barrel.
Both global oil benchmarks are now near pre-war levels. On February 27th, the day before the conflict broke out, Brent closed at US$72.48 per barrel, while WTI was at US$67.02 per barrel. This indicates that the geopolitical risk premium in the oil market is evaporating.
Oil price pressure stems primarily from improved shipping flows through the Strait of Hormuz. Before the war, approximately 20% of global oil supplies passed through this strategic waterway. As shipping traffic has returned to normal, concerns about energy supply disruptions from the Middle East have eased.
However, the diplomatic process has not yet fully confirmed the outcome. Qatari officials said the US envoy arriving in Doha will not hold a high-level meeting with Iran. Instead, technical talks will be held this week to discuss issues such as regional security, before later being escalated to a senior level.
The presence of Jared Kushner and envoy Steve Witkoff in Doha follows a weekend of exchanges of fire that tested the interim agreement reached on June 17 between the United States and Iran. The 14-point pact gave both sides 60 days to negotiate a permanent ceasefire and resolve thorny issues, including the future of Iran's nuclear program.
Beyond geopolitical factors, the market is also monitoring the medium-term supply outlook. Morgan Stanley estimates that the global oil market could experience an implied surplus of 4.8 million barrels per day by 2027. This surplus projection adds to bearish pressure as the market sees the potential for tighter supply in the coming years.
Investors' next focus will be on US oil inventory data. The market is awaiting weekly reports from the American Petroleum Institute on Tuesday and the Energy Information Administration on Wednesday. Analysts estimate that energy companies withdrew approximately 4.5 million barrels of crude oil from inventories for the week ending June 26.
If the projection is correct, inventory draws would have occurred for the 10th consecutive week, equaling the record set in January 2018. However, the decline in inventories has not been enough to change the underlying sentiment, as the market remains more focused on normalizing supply from the Middle East and the potential for a de-escalation of the conflict.
Overall, oil prices are still in a major correction phase after the previous surge caused by the Iran war. As long as shipping flows through the Strait of Hormuz continue and US-Iran talks do not deteriorate, oil prices could remain under pressure. However, if the ceasefire is violated again or supply is disrupted, oil volatility could increase rapidly. (arl)
Source: Newsmaker.id
