Diplomatic tensions surrounding the Strait of Hormuz have intensified once again, and markets have begun to reduce the risk premiums that were previously elevated due to conflicts in the Middle East. International oil prices continued to be under pressure on Thursday. Both Brent and WTI have fallen significantly from their recent highs, but the supply of refined oil remains tight, keeping markets cautious about future trends.
The decline in oil prices is related to expectations of cross-strait passage.
Reuters data shows that on Thursday morning, Brent crude oil was reported at $87.43 per barrel, while WTI was at $81.86 per barrel, continuing the downward trend of the previous few trading days. Iran, Oman, and Qatar are pushing for negotiations in an attempt to alleviate transportation disruptions around the Strait of Hormuz.
Before the conflict, this waterway carried about one-fifth of the world's oil and gas transportation volume. Although shipping has not yet fully resumed, as long as the market believes that supplies from the Middle East are expected to return, the geopolitical premium that has accumulated earlier will be suppressed.
Diesel prices remain high.
The decline in crude oil prices does not mean that the energy market has eased. More direct signs of tension come from refined products such as diesel.
The report mentions that ultra-low sulfur diesel futures are still around $4.10 per gallon, which is significantly higher than the 50-week moving average of about $3.28. This indicates that the supply of middle distillate oil remains tight, and even though crude oil prices have fallen from their highs, the tension in the refining sector has not significantly eased.
This differentiation is crucial for the market. Crude oil inventories do not show signs of extreme shortages, but the supply of diesel and other refined products is more constrained, which may continue to support the overall energy price system.
OPEC Coexistence of increased production and supply shortages
Another variable on the supply side comes from OPEC. This organization plans to increase its production quota in September by another 188,000 barrels per day, and if member countries can implement this plan as scheduled, it will add to the market supply.
However, the International Energy Agency still expects that there will be a supply gap of approximately 1.8 million barrels per day in the global crude oil market in the third quarter. The agency also mentioned that the refined oil market is tight and observable inventories are declining, which means that even if crude oil prices fall in the short term, the supply-demand situation has not yet fully weakened.
From a price perspective, WTI is currently supported around $80 to $81, while Brent is facing challenges in the $84 to $85 range. If the negotiations over Hormuz continue to progress, oil prices may remain weak; if the negotiations stall or diesel supply further tightens, the market may once again take into account geopolitical and supply risks.
