Contango Emerges, Oil Market Signals Oversupply
Oil prices stabilized on Thursday (July 2nd), near their pre-war lows, as market participants closed some bearish positions ahead of the long US holiday. However, sentiment remained overshadowed by the recovery in supply flows from the Persian Gulf and signals of a short-term oversupply.
West Texas Intermediate (WTI) for August delivery rose 0.2% to close at US$68.69 per barrel. Meanwhile, Brent for September delivery strengthened 0.3% to US$71.80 per barrel. Both oil benchmarks remained near their lowest levels since before the Iran war began in late February.
Fundamental pressure stems from the recovery of oil flows through the Strait of Hormuz. Oil flows through this strategic waterway reportedly surged to around 14 million barrels on July 1st. This figure does not include shipments via alternative routes such as Saudi Arabia's Red Sea coast and the Port of Fujairah in the United Arab Emirates.
The recovery in export flows demonstrates how quickly oil supplies from Persian Gulf producers can return to the market. Saudi Arabian exports are said to have reached around 90% of pre-war levels. This situation has caused the market to begin facing a surge in new supply while several wartime emergency routes are still in place.
The Brent price structure is also starting to show bearish signs. Short-term contracts are trading at a discount to longer-term contracts, known as contango. This structure typically signals a short-term market oversupply.
Physical oil premiums have also fallen sharply in recent days. This suggests that buyer demand has not been able to absorb the rapid supply recovery, especially as Chinese imports remain weak and the release of previous emergency reserves continues to affect market balance.
Brent remains in a downward trend after recording its biggest quarterly decline since the 2020 pandemic. Oil prices have fallen more than 40% from their peak as the Iran war escalated. The continued flow of ships through Hormuz has helped ease concerns about a surge in energy-related inflation.
However, geopolitical risks have not completely disappeared. The United States and Iran have not yet reached a permanent peace agreement. Qatar stated that the next round of indirect talks will be scheduled as soon as possible after the funeral procession of former Iranian Supreme Leader Ali Khamenei.
Iran also reiterated its determination to control shipping traffic through the Strait of Hormuz. This issue remains a major sticking point in the talks, alongside Iran's nuclear program and the conflict in Lebanon.
Overall, current oil price movements indicate the market is beginning to remove the war risk premium and is focusing more on the potential for oversupply. If the Hormuz flow continues to recover and Chinese demand fails to improve, oil prices risk remaining depressed. However, if US-Iran talks are disrupted again or Iran tightens shipping controls, oil volatility could still increase at any time. (arl)
Source: Newsmaker.id
