Oil trading on Friday was relatively calm, with both Brent and West Texas Intermediate fluctuating early in the session but easing at mid-point (in the case of the former) to $75.71 per barrel, above its $72 price at the start of the week but well below the wartime peak of nearly $120.
Trading was muted amid a turbulent day of hostilities between the U.S. and Iran, after further military strikes against the Islamic republic; the United Kingdom Maritime Trade Organization warning that the threat level in the Strait of Hormuz remains “severe”; U.S. president Donald Trump stating his country has agreed to resume talks with Iran but reiterating that the ceasefire is over; and the revelation that Trump earlier made plans to have Iran “obliterated” if the regime in that country succeeds in its vow to assassinate him.
Scott Shelton, an energy specialist at TP ICAP Group, said, “Overall, the price action is consistent with the narrative that the market doesn’t think the hostilities are going to last; on the flip side, oil flows out of the Strait of Hormuz are down significantly from last week while there are signs that China may be increasing runs.”
“But the picture after the war ends looks increasingly bleak when examining balances.”
Mixed messages continue to proliferate: a senior U.S. official told media that Washington has facilitated the transit of 825 commercial vessels through the Hormuz since early May, and almost 2,600 ships have made the transit since the ceasefire was implemented on April 8.
This contributed to a remarkable rebound of worldwide inventories: global oil supply rebounded by a massive 4.1 million barrels per day (bpd) to 98.8 million bpd in June.
But Tehran reportedly prepared to accept renewed military escalation rather than relinquish control over commercial traffic through the strait, having supposedly replaced portions of its coastal radar network and regained more than half of its prewar missile inventory.
Despite Friday’s relatively calm trading, the International Energy Agency stated in its Oil Market Report for July that an escalation in hostilities between the U.S. and Iran “clouds the outlook and could upend the forecast that sees the market flipping to a surplus next year.”
However, the IEA also stated that product supply and deliveries are much slower to rebound and markets are still tight as a result: “The disconnect between apparently well supplied crude oil markets and tight product markets underpinned a rally in cracks and refinery margins to four-year highs by early July.”
In other oil news on Friday, the IEA also assessed the damage to Russia oil infrastructure caused by relentless drone strikes from Ukraine, stating, “Continued strikes on refineries, storage facilities and transport infrastructure underpin a weaker production outlook and we have accordingly cut our Russian supply outlook for this year and next, by 85,000 bpd and 150,000 bpd respectively, to average 8.8 million bpd over the forecast period.”