Oil Under Pressure, Hormuz Opening Reduces Risk Premium
Oil prices were stable on Friday and have changed little so far this week. Market participants remain hopeful that peace efforts between the United States and Iran can progress, thus easing the risk of supply disruptions from the Middle East.
Brent fell 4 cents, or 0.06%, to US$71.76 per barrel at 11:32 GMT. Meanwhile, West Texas Intermediate (WTI) fell 20 cents, or 0.29%, to US$68.49 per barrel. For the week, Brent fell 0.3%, while WTI fell around 1.1%.
On Thursday, both oil benchmarks touched their lowest levels since before the US-Israel war against Iran began in late February. Pressure on oil arose from market expectations that the Strait of Hormuz could be fully reopened as US-Iran peace talks continue.
Citi analysts believe the US-Iran deal process remains fragile but remains viable for now. Tariffs and management of the Strait of Hormuz remain contentious. However, the memorandum of understanding is expected to remain in effect as neither side is considered to have a strong incentive to cancel it.
Some oil shipments have resumed through the Strait of Hormuz as per the initial US-Iran agreement. However, uncertainty remains high after the two countries traded barbs last weekend, following an Iranian attack on a cargo ship.
With shipping opportunities starting to recover, Gulf producers are seeking to increase production. Kuwaiti oil production rose sharply to 1.65 million barrels per day in June from 580,000 barrels per day in May. Furthermore, at least five supertankers carrying a total of 10 million barrels of Saudi oil have exited the Strait of Hormuz, while Saudi Aramco has switched to spot pricing to accelerate sales to Asia.
From a market analyst perspective, a sustained recovery in oil prices is likely only after the market absorbs the pent-up supply held up in tankers and storage. As supply availability increases, the market structure shifts from backwardation to contango, reflecting diminishing expectations of future supply shortages. (gn)
Source: Newsmaker.id
