Oil prices remained largely unchanged in thin trading as peace talks between the US and Iran offered hope for the Strait of Hormuz's reopening, with Brent crude trading just above $72 a barrel and West Texas Intermediate below $69, according to The Hindu BusinessLine. Both benchmarks have erased their war-time rally in their biggest quarterly slump since 2020, with volumes depressed due to the US Independence Day holiday. Trading was light as US markets were closed ahead of the Independence Day holiday on Saturday, with both benchmarks ending the week just 5 cents lower than last Friday's close. On Thursday, the two oil benchmarks had hit their lowest levels since before the US-Israeli war with Iran began in late February, as reported by The Economic Times. Investor hopes for a full reopening of the Strait of Hormuz are being buoyed by peace talks between the US and Iran, with Commerzbank analysts noting that the U.S.-Iran dealmaking process remains fragile but continues for now. The US and Iran have held positive discussions in Qatar to convert their interim 60-day truce into a lasting settlement, according to The Hindu BusinessLine.
OPEC crude production rose by 2.34 million barrels a day in June as Persian Gulf members restored exports through the Strait of Hormuz, with the gains driven by Kuwait, Saudi Arabia and Iran, according to a Bloomberg survey. Exports from Saudi Arabia have surged to 90 per cent of their pre-war level, mirroring a rebound in the United Arab Emirates, while Iraq, among the hardest hit by the crisis, is finally showing signs of recovery. A hoard of Iranian oil is also building up at sea, as reported by The Hindu BusinessLine. Saudi Arabia's crude exports have now recovered to around 90% of their pre-conflict levels, with at least five supertankers carrying a total of 10 million barrels of Saudi oil having left the strait, according to The Economic Times. Kuwait's oil production rose sharply to 1.65 million bpd in June, from 580,000 bpd in May, a source close to the matter told Reuters. OPEC output in June rose by 3.3 million barrels per day month-on-month, according to a Reuters survey, as Gulf producers work to increase output with the prospect of shipping more oil.
The recovery in Middle Eastern supply is outpacing initial expectations while Chinese-depressed import demand remains weak, said Rory Johnston, founder of the Commodity Context newsletter, as reported by The Economic Times. Brent crude for prompt delivery traded this week below contracts for delivery as far as six months into the future, the latest sign that increasing shipments through the strait have caused a near-term glut. Brent's prompt spread has been in a bearish contango price structure for much of this week, with discounts on the nearest contracts signaling oversupply, according to The Hindu BusinessLine. The market structure has turned from backwardation to contango, reflecting decreasing expectations of future shortages, with the market signalling ample near-term supply as Brent's prompt spread remains in contango — a structure where near-term contracts trade below later-dated ones — for much of the week. Price differentials for cargoes in many regions are also languishing, while Chinese buyers are still missing from the market, leading to weakness in the physical crude market, though inventories are currently lower than expected. Citi analysts expect the MOU to hold, not because trust has suddenly emerged, but because the incentives to break are poor for both sides.
In an interview with CNBC, US President Donald Trump said that negotiations with Iran were continuing and claimed Tehran had 'agreed to just about everything we need', but reports suggest significant differences remain in the ongoing discussions. According to the Wall Street Journal, Western negotiators have proposed unfreezing billions of dollars in Iranian funds held overseas in exchange for Tehran dropping its claim over oversight of the Strait of Hormuz and abandoning plans to levy transit fees on ships using the route. However, Iran has reportedly shown little willingness to compromise on those demands, with the negotiations continuing amid key sticking points including Iran's nuclear programme and the conflict in Lebanon, which continue to complicate the 60-day ceasefire period. Diplomats offered to unfreeze billions of dollars of the nation's funds held overseas in exchange for Tehran renouncing its claim over Hormuz and toll payments, but the Islamic Republic isn't budging, the Wall Street Journal reported. Some European nations now believe that fees for transiting Hormuz are inevitable and ships making the crossing will have to pay Iran and Oman, according to people familiar with the discussions. Citi expects the MOU to hold and turn into a deal over the coming months as incentives to de-escalate outweigh the alternative for the US, Iran, and much of the ME region.
Fundamentals are rapidly reasserting themselves as Hormuz disruptions fade and shipping flows are normalizing, said Citigroup analysts, as reported by The Hindu BusinessLine. Citigroup Inc. predicted the global benchmark could extend declines to $60 a barrel by year-end, with analysts including Francesco Martoccia and Eric Lee recommending selling any summer rallies. However, technical signals suggest the selloff could have run its course, with Brent's 14-day relative strength index having fallen below 30, indicating futures may have been oversold. The US-Iran process remains fragile and disputes over Hormuz administration and transit fees persist, the Citigroup analysts noted. Rising traffic and organised shipping patterns show that market participants now see the risk as manageable rather than disruptive, as reported by Reuters. However, Chinese buyers are still missing from the market, leading to weakness in the physical crude market, while inventories are currently lower than expected. Analysts warn that global oil inventories were depleted during the prolonged disruption to shipping through the Strait of Hormuz and will take time to rebuild, with stockpiles expected to continue declining before additional Gulf supplies reach international markets.
