Crude oil has surrendered its entire war premium after the U.S.-Iran ceasefire reopened the Strait of Hormuz, sending Brent and WTI back to late-February prices. With stranded supply flooding the market and China holding off on purchases, traders have flipped their focus from shortage to glut.
Oil has given back everything it gained during the war. Following the U.S.-Iran ceasefire agreement and the reopening of the Strait of Hormuz, Brent crude futures trade at $71.6, near the pre-war level of $72.48 recorded on February 27. West Texas Intermediate has rebounded to $68.26, approaching its February 27 level of $67.02.
The war premium unwinds
A large volume of crude reached the market in a short window once Hormuz normalized. On July 4, Bloomberg reported that concerns over a global oil supply glut had reignited on the surge in crude supply and the sharp drop in prices. The market’s attention has shifted from supply shortage to supply glut.
Brent has plummeted 43% from its peak at the end of April, according to Bloomberg. The spot market is showing its most extreme bearish signals since demand collapsed during the COVID-19 pandemic. On top of that, OPEC+ has agreed to a slight monthly production increase, which is expected to accelerate the oversupply.
Contango signals a lasting surplus
The bearish shift is visible in the futures curve. The spread for six-month Brent turned negative for the first time this year on July 1, widening to minus $5.6 per barrel on July 2 before edging back to positive on July 3. Such contango — where near-month crude is cheaper than later deliveries — points to weak current demand and a surplus that investors expect to persist.
The immediate cause is Hormuz itself. After the ceasefire memorandum was signed, over 60 million barrels stranded during the war were released at once. With China, the largest importer, staying on the sidelines, unsold crude is piling up.
Energy stocks give back gains
The slide has pulled down major producers. Over the past three months, Chevron has fallen 14.96%, Occidental 22.33%, and ExxonMobil 14.69%, unwinding their pre-war gains.
Refiners face a more mixed picture. A sharp drop in crude pressures quarterly earnings through inventory valuation losses on already-purchased barrels, yet cheaper feedstock can widen refining margins — the gap between product sale prices and crude costs.
Source: The Chosun Daily
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