①Progress in US-Iran negotiations eased market sentiment, and crude oil fell on Monday.
②However, the continued decline in global commercial and strategic oil and petroleum product inventories could trigger a surge in demand.
③The duration, extent, and manner of the Strait of Hormuz reopening may differ significantly from market expectations, and the oil market still faces supply-side pressures.
On June 23, the media committee of the Iranian negotiating delegation released five key points from the first round of US-Iran talks on Monday. Subsequently, the US Treasury issued a general license authorizing, until August 21, the production, transportation, and sale of crude oil, petrochemical products, and petroleum products of Iranian origin.
This development drove a sharp decline in international crude oil prices and significantly improved risk market sentiment. However, analysts point out that the phased progress in US-Iran talks cannot yet prevent an impending oil crisis, as the substantial depletion of global commercial and strategic oil and petroleum product inventories may trigger a surge in demand.
Energy expert and freelance writer Kurt Cobb stated that the world is approaching the depletion line for available oil and petroleum product inventories. Once inventories are exhausted, the market could see bidding wars to cover daily oil demand of millions of barrels.
He emphasized that Iran has demanded, as a precondition for talks, that Israel cease hostilities in all regions, including Lebanon. Meanwhile, the US and Iran also hold differing interpretations of the reopening of the Strait of Hormuz, and shipping companies and insurers have different risk assessments for transit.
This implies that the duration, extent, and manner of the Strait of Hormuz reopening may differ significantly from market expectations, and the oil market still faces supply-side pressures.
Abacus
According to Seyed Marandi, a professor of English and Oriental Studies at the University of Tehran, if the Strait of Hormuz were truly reopened, its management might involve carefully controlling traffic flow at levels well below pre-war norms.
Marandi, who has close ties to the Iranian government, is widely regarded as an unofficial spokesperson for the administration.
Cobb believes that Iran might keep traffic through the strait at a minimum to claim the strait is open, thereby allowing negotiations to continue while still preventing the global economy from obtaining adequate supplies of oil, LNG, and other critical products.
Additionally, tanker operators and cargo owners would worry about whether vessels entering the Persian Gulf would be permitted to return, as the situation appears to change daily. Numerous uncertainties could deter many tankers, while Iran could claim the strait is open yet state that it cannot force shipping companies to transit.
Cobb also pointed out that it is noteworthy that the US-Iran negotiations have a 60-day deadline. Iran may have presupposed at the time of signing the memorandum of understanding that global crude oil inventories would be depleted during the negotiation period, which would lead to a surge in oil prices, weaken the US negotiating position, and compel US negotiators to make further concessions to Iran in order to resolve the issue as quickly as possible.
He emphasized that the Trump administration will certainly attempt once again to suppress oil prices through manipulation of public opinion, which may prove effective in the short term as it has in the past, but ultimately will not reverse the trend of declining inventories.
