Crude Oil
Oil falls for another week as Hormuz traffic picks up
The August WTI contract fell to the lowest level since early March as tanker traffic through the strait of Hormuz rose, and the market continues to price in the possibility of a lasting resolution to the US-Iran conflict. The 2027 calendar strip fell to x and the 2028 strip finished the week at x.
On Thursday, Bloomberg reported that Saudi crude exports have risen to the highest level since the start of the conflict, with multiple supertankers transiting the strait, using a US-administered corridor in Omani waters. Only four Saudi tankers remain behind the strait, with two of them indicating they are fully loaded and preparing to exit. This comes amid continued discussions between US negotiators and Iranian leaders, which appear to be progressing despite Iran insisting on having some degree of control over the strait.
Goldman Sachs warned this week that despite global inventories needing to be restocked after a normalization of traffic, the crude market is headed for oversupply in the second half of the year. Assuming the traffic returns to normal by the end of July, the restocking of inventories will only partially offset a 3 MMBbl/d surplus into next year.
Meanwhile, Ukraine continues to strike Russian refining capacity. It was reported this week that an attack on Lukoil’s Norsi refinery damaged a processing unit, exacerbating fuel supply issues in the country. About 90% of Russia is currently experiencing fuel shortages due to recent refinery attacks, but this has also resulted in higher crude exports. As local Russian refinery capacity comes offline, more crude has to be exported, leading to Russian crude exports reaching the highest level since the start of the conflict with Ukraine.