11-day war premium erased! Brent falls below pre-war levels, low inventories hide the rebound cue
In just 11 trading days, international oil prices have completed a dramatic reversal. With tensions between the U.S. and Iran cooling and shipping through the Strait of Hormuz returning to normal, the war premium that had previously been piled up by geopolitical conflict has been fully wiped out. Brent crude has continued to slide, and prices have fallen below the level before the outbreak of hostilities. Market panic has been quickly cleared.
Under prior Middle East tensions, route passage was disrupted and oil tankers were delayed, triggering fears of supply interruptions and driving oil prices sharply higher. Geopolitical risk premium became the core logic supporting the rise in oil prices. As the ceasefire took hold and the strait reopened, the previously stranded tankers resumed passage one after another. The market, having pre-priced the return to a looser supply outlook, saw longs collectively exit. Oil prices have continued to fall, wiping out not only all the gains during the conflict, but also pushing Brent further to below pre-war levels, revealing short-term oversold characteristics.
Current conditions are fraught with disagreement: the futures market has sharply dropped in line with shifts in expectations, but the spot fundamentals have not eased correspondingly. Ongoing tight global crude inventories are a key constraint on how deep prices can fall. During the conflict, inventories kept being drawn down. Commercial crude oil inventories and refined product stocks in Europe and the U.S. have continued to decline; inventory levels have fallen below the five-year average. In North America, delivery-warehouse stocks are nearing operational warning thresholds. On top of that, with the summer travel peak approaching, refinery operating rates remain high and demand continues to consume inventories steadily, making short-term replenishment difficult.
In a low-price environment, refiners and traders’ willingness to replenish inventories increases, but the spot-tight pattern has not been fundamentally reversed. Combined with the fact that shipping recovery is slower than the market’s optimistic expectations, tanker freight rates and insurance costs are still higher than pre-war levels. The supply-demand gap has not closed quickly, so after oversold conditions, there may be technical rebound momentum.
In just 11 trading days, international oil prices have completed a dramatic reversal. With tensions between the U.S. and Iran cooling and shipping through the Strait of Hormuz returning to normal, the war premium that had previously been piled up by geopolitical conflict has been fully wiped out. Brent crude has continued to slide, and prices have fallen below the level before the outbreak of hostilities. Market panic has been quickly cleared.
Under prior Middle East tensions, route passage was disrupted and oil tankers were delayed, triggering fears of supply interruptions and driving oil prices sharply higher. Geopolitical risk premium became the core logic supporting the rise in oil prices. As the ceasefire took hold and the strait reopened, the previously stranded tankers resumed passage one after another. The market, having pre-priced the return to a looser supply outlook, saw longs collectively exit. Oil prices have continued to fall, wiping out not only all the gains during the conflict, but also pushing Brent further to below pre-war levels, revealing short-term oversold characteristics.
Current conditions are fraught with disagreement: the futures market has sharply dropped in line with shifts in expectations, but the spot fundamentals have not eased correspondingly. Ongoing tight global crude inventories are a key constraint on how deep prices can fall. During the conflict, inventories kept being drawn down. Commercial crude oil inventories and refined product stocks in Europe and the U.S. have continued to decline; inventory levels have fallen below the five-year average. In North America, delivery-warehouse stocks are nearing operational warning thresholds. On top of that, with the summer travel peak approaching, refinery operating rates remain high and demand continues to consume inventories steadily, making short-term replenishment difficult.
In a low-price environment, refiners and traders’ willingness to replenish inventories increases, but the spot-tight pattern has not been fundamentally reversed. Combined with the fact that shipping recovery is slower than the market’s optimistic expectations, tanker freight rates and insurance costs are still higher than pre-war levels. The supply-demand gap has not closed quickly, so after oversold conditions, there may be technical rebound momentum.