Price Trend Summary

During the early part of the first week, after Yemen's Houthi militants officially joined the Iranian war and expanded the Middle East conflict, market concerns over supply disruptions escalated. Meanwhile, US President Trump warned again that if Iran did not reopen the Strait of Hormuz, the US would destroy its energy infrastructure and oil fields, driving oil prices up to the high level of 110-120 USD.

In the mid-week period, unverified media reports circulated suggesting that Iran would be willing to end the war if it received certain security guarantees. President Trump further stated that US military operations against Iran could conclude within two to three weeks. These developments temporarily eased market fears of supply disruption risks, driving oil prices down to around 100 USD, with a single-day drop of 14.5% on 04/01.

In the latter part of the week, President Trump promised to intensify military actions in the coming weeks, reiterating the threat to strike Iran's power infrastructure if Tehran did not accept an agreement. Iran denied having any direct negotiations with Washington and refuted Trump's earlier claims that Tehran had requested a ceasefire, shattering hopes for an imminent truce and causing oil prices to surge significantly.

During the early part of the second week, Trump hinted at a possible early escalation of strikes against Iran, intensifying market fears that military action would undermine initial progress in restoring oil shipments. As Trump's April 8 ultimatum approached, the US military bombed Kharg Island, and Iran severed all diplomatic communications with the US, pushing tensions to a peak. Oil prices remained elevated at 110-120 USD.

In the mid-week period, market expectations that the Strait of Hormuz might reopen following the two-week ceasefire agreement between Trump and Iran became the primary driver for a sharp drop in oil prices. Additionally, EIA data showed that US crude inventories increased by 3.1 million barrels, exceeding market expectations. This continuous inventory build further exacerbated the price decline, with oil rapidly falling back to around 90 USD.

In the latter part of the week, Israel's announcement of peace talks with Lebanon also acted as a key factor suppressing oil price gains. However, on the eve of the US-Iran ceasefire talks, market concerns about supply disruptions and geopolitical risks had not entirely faded. Despite the price pullback, blocked shipping in the Strait of Hormuz and damaged energy facilities in the Middle East kept shipping volumes at less than 10% of normal levels, maintaining high uncertainty for oil prices. Saudi Arabia stated that its energy infrastructure had been attacked, reducing its daily oil production capacity by about 600,000 barrels. Buoyed by this news, oil prices rebounded slightly.

Agency Monthly Report: EIA Downgrades Supply/Demand Growth, Upgrades Oil Price Forecast

EIA Supply and Demand Forecast for this month:

EIA

• According to the EIA's April Short-Term Energy Outlook, shipping disruptions in the Strait of Hormuz have restricted oil exports from major Persian Gulf producers, leading to rapid saturation of regional storage and forced capacity shutdowns. The scale of crude oil production shut-ins was approximately 7.5 million barrels/day in March and expanded further to 9.1 million barrels/day in April. If the conflict does not continue and shipping gradually resumes, shut-in volumes are expected to fall back to 6.7 million barrels/day in May, approaching pre-conflict levels by the end of 2026. The forecast for the daily net draw of global oil inventories in 2026 was revised down to a draw of 300,000 barrels/day, compared to the previously estimated build of 1.9 million barrels/day.
• Regarding oil prices, the EIA upgraded its price expectations. The spot price of Brent crude averaged 103 USD/barrel in March and is expected to climb to a peak of 115 USD/barrel in the second quarter of 2026. Assuming the conflict does not extend into April, prices are expected to gradually retreat as supply disruptions ease, falling below 90 USD/barrel by the fourth quarter of 2026, with an annual average of about 76 USD/barrel in 2027. However, due to lingering market premiums for supply uncertainty, overall price expectations will remain above pre-conflict levels.
• Concurrently, the price spread between Brent and WTI crude widened significantly, averaging 12 USD/barrel in March, and is expected to rise to a peak of 15 USD/barrel in April. This is primarily due to rising shipping costs from the Middle East to Asia and constrained supply, causing Brent to rise much faster than WTI. As shipping resumes and supply improves, the spread will gradually narrow.
• The upward trend in crude prices has also driven up refined product prices. Diesel prices have remained high at over 5.80 USD/gallon due to tight global supply and US inventories sitting 5% below the five-year average, pushing the average annual diesel price to approximately 4.80 USD/gallon in 2026 and 4.11 USD/gallon in 2027. However, because US gasoline inventories are broadly sufficient, pressure on gasoline refining and retail margins is relatively limited. US retail gasoline prices are expected to average 3.70 USD/gallon in 2026 and 3.46 USD/gallon in 2027.

US Crude Oil Data Update

Crude Builds Above Expectations, Products Continuously Draw Down, Refinery Utilization Drops Slightly

According to the latest data released by the EIA and Baker Hughes from 03/30 to 04/10, the US crude oil market exhibits a significant structural divergence: "crude inventories continue to accumulate, while refined product inventories are rapidly depleted." Meanwhile, upstream exploration activities remain highly restrained despite high oil prices.

Regarding crude inventories and refinery utilization, EIA data (for the weeks ending 03/27 and 04/03, respectively) shows that US commercial crude inventories saw consecutive weeks of unexpectedly large builds, rising by approximately 5.45 million and 3.08 million barrels. This brought total inventories to 464.7 million barrels, about 2% higher than the five-year average for this time of year. The primary cause of this crude build is the continuous decline in refinery utilization, which edged down from 92.90% to 92.00%. Midstream refineries have cooled their actual consumption of crude, directly weakening upstream demand. Data indicates that average daily crude inputs dropped to 16.3 million barrels, a decrease of 130,000 barrels from the previous week, thereby pushing undigested crude into commercial storage. Secondly, to calm the surging oil prices triggered by Middle East geopolitical conflicts and blocked straits at the end of the first quarter, the IEA coordinated an emergency release of oil reserves. This resulted in the US Strategic Petroleum Reserve (SPR) releasing over 1.8 million barrels of crude into the commercial market in early April, further inflating total commercial inventory figures.

In stark contrast to the crude inventory build, gasoline and distillate (including diesel and heating oil) inventories showed a significant drawdown trend. Gasoline inventories fell by 586,000 and 1.589 million barrels over these two weeks; distillate inventory declines were even more severe, plunging by a total of over 5.25 million barrels (dropping 2.111 million and 3.144 million barrels, respectively), pushing inventory levels to a tight state approximately 5% below the five-year average. The most direct cause of this dual decline in product inventories is the reduction in output due to lower refinery utilization rates. Additionally, with summer approaching, the peak US driving season is imminent, leading to a steady seasonal recovery in end-consumer demand for gasoline. For distillates, the global market's reliance on US refined products like diesel has surged due to the disruption of Middle Eastern refinery exports. Strong export demand and high crack spreads have further accelerated the depletion of US domestic distillate inventories.

On the upstream drilling front, despite international oil prices briefly reaching highs due to geopolitical risk premiums during this period, the expansion response from US producers has been unusually cold. Over these two weeks, the number of active crude oil rigs held perfectly steady at 411, while the total rig count, including natural gas, even slightly declined from 548 to 545. This is primarily attributed to the strict capital discipline adhered to by US shale companies in recent years. Financial institution tracking data shows that most producers have further reduced their 2026 capital expenditure plans by about 1% compared to 2025. Producers prefer utilizing free cash flow to issue dividends or implement stock buybacks to reward shareholders, rather than blindly expanding capacity. Furthermore, there is a delay of several months from price signal transmission to the actual deployment of drilling rigs and personnel, meaning short-term price spikes have not immediately translated into substantial growth in rig counts.

A comprehensive analysis of the data over these two weeks reveals that partial refinery load reductions for maintenance and the release of national strategic reserves have jointly pushed up US crude inventories, while reduced refinery output and a seasonal demand recovery have depleted refined product reserves. At the same time, even in the face of highly attractive oil prices, US crude producers remain committed to capital discipline, which means the overall oil market will continue to face structural support from tight refined product supplies in the short term.

Important News & Current Events

US and Iran Reach Two-Week Ceasefire Agreement

US President Donald Trump initially took a hardline stance against Iran, even threatening to attack its civilian infrastructure if the Strait of Hormuz remained closed. However, just before the deadline, his policy shifted significantly as he announced a suspension of military action and pushed for a "two-way ceasefire," while also signaling a willingness to open negotiations with Iran on tariffs and sanctions relief, turning short-term market sentiment optimistic. Nevertheless, diplomatic easing did not effectively reduce geopolitical risks, and regional conflicts persisted; Israel continued to launch airstrikes inside Lebanon, indicating that the ceasefire agreement lacked substantive binding force. Simultaneously, Iran expressed strong dissatisfaction with the agreement itself, pointing out issues such as the violation of the Lebanon ceasefire, drone incursions into its airspace, and the denial of its uranium enrichment rights, which significantly weakened the foundation for formal negotiations.

In terms of energy and shipping, the critical bottleneck remains the de facto blockade of the Strait of Hormuz. Although Iran signaled a potential limited reopening of the strait to pave the way for bilateral talks, its navy simultaneously warned that unauthorized vessels would face the risk of destruction, creating a contradictory situation of policy signaling coexisting with military deterrence. Actual data also reflects the unresolved tension, with vessel traffic through the strait remaining at 10% of normal levels, and ships required to follow Iran-designated routes to avoid naval mines, indicating that normal operations in the key waterway will be difficult to restore in the short term. Even with a potential reopening window, shipping companies generally choose to delay full resumption until safety terms and risk assessments are clarified, implying that supply chain repair will be delayed.

The supply-side shock has also spread to producer infrastructure. Saudi Arabia's East-West pipeline, the only export channel bypassing the Strait of Hormuz during the conflict, was attacked, resulting in a loss of about 600,000 barrels/day of production capacity and 700,000 barrels/day of transmission capacity, weakening its export flexibility. More notably, Iran launched a strike against the pipeline just hours after the ceasefire, highlighting that the conflict has only nominally cooled while continuing in substance. Furthermore, according to JPMorgan, over 60 energy facilities in the Middle East have been attacked, and at least 8 face lengthy repair periods, meaning the supply-side shock is not merely a short-term interruption but could evolve into a medium-term capacity constraint. Interestingly, however, Iran's crude oil production is higher than the market's expectation of 1.5-2 million barrels/day, remaining essentially at 3.2 million barrels/day—almost identical to pre-war levels. This suggests that US strikes on Iran's oil facilities were not as severe as imagined, and the US even exempted Iranian tankers passing through the strait. If a permanent truce is reached, the recovery speed of global oil production may exceed market expectations.

Under this structure, even if a ceasefire framework is formally established, the energy market still faces a repricing process characterized by high-risk premiums. Oil prices stabilized in the short term due to optimistic expectations, but under the multiple constraints of blocked shipping, damaged infrastructure, and ongoing military activities, the price center of gravity will likely remain higher than pre-war levels. Additionally, tanker insurance premiums and freight rates remain elevated due to the threat of mines and military uncertainty, further driving up the delivery costs of physical crude. Overall, the current situation has fundamentally entered a fragile equilibrium of high volatility and low predictability. Future market trends will rely heavily on the actual restoration of transit through the Strait of Hormuz and whether regional military actions truly converge.

US and Iran Fail to Reach Peace Agreement After Negotiations

During high-level talks held by the US and Iran in Pakistan, despite approximately 21 hours of intensive negotiations, the two sides ultimately failed to reach any substantive agreement on ending the conflict and establishing a long-term peace mechanism. Structural differences on core issues remain unbridgeable.

The breakdown of these negotiations stemmed primarily from multiple key disputes, including severe opposition regarding Iran's nuclear program, control of the Strait of Hormuz, and sanctions and security commitments. The US demanded that Iran limit or even abandon its nuclear weapons development, restore freedom of navigation, and halt regional military activities. In contrast, Iran insisted on its uranium enrichment rights, claimed sovereign control over the Strait of Hormuz, and demanded the lifting of sanctions along with war reparations. The two sides lacked common ground on exchange conditions across security, sovereignty, and economic dimensions. Furthermore, during the negotiations, senior Iranian officials publicly stated that the US had failed to earn the trust of the Tehran delegation, while the US believed Iran's terms were too rigid and unrealistic. As a result, even with progress at the technical level, it could not translate into a political consensus. Differences also existed regarding the scope and execution details of the ceasefire, such as whether it covered the Lebanese front and whether the Strait of Hormuz would be fully reopened, further diminishing the likelihood of forming an agreement.

Following the failure of the US-Iran peace talks, US President Trump ordered the Navy to immediately blockade the critical Strait of Hormuz. The US is set to implement a naval blockade on all maritime traffic entering and leaving Iranian ports starting at 10:00 AM New York time on Monday. The US military stated it would not impede the freedom of navigation for vessels traveling through the Strait of Hormuz to and from non-Iranian ports. The Iranian side stated, "We will not allow it. The blockade continues." Trump stated that the US would intercept any vessel paying tolls to Iran for safe passage through the Strait of Hormuz and would clear mines from the strait. The blockade will cut off the transportation of nearly 2 million barrels of Iranian oil per day, further squeezing global oil supplies and severing Iran's economic lifeline. Trump is attempting to force concessions from Iran by weakening its influence in the Strait of Hormuz, but this simultaneously drives up the risk of situation escalation. Upon market opening on Monday, Brent crude prices surged by 9.1% at one point, nearing 104 USD per barrel, and European natural gas futures prices also spiked by nearly 18%.

Overall, the failure to reach a peace agreement in these negotiations reflects that both sides not only have deep conflicts over specific policy terms but also lack a common foundation in strategic trust and perception of regional order. This means that the ceasefire can only maintain a fragile and short-term equilibrium, leaving a high degree of uncertainty for further conflict escalation in the future.

Conclusion

Looking comprehensively at price trends, supply and demand data, and geopolitical events, the crude oil market is essentially undergoing a repricing process from "extreme supply shock → rapid dissipation of risk premium → a return to uncertainty dominance." Taking Brent crude as an example, the significant price drop of nearly 20% from its peak does not simply reflect relaxed supply and demand; rather, it reflects a downward revision in the market's probability of worst-case scenarios, such as a long-term blockade of the Strait of Hormuz. However, this pullback is not built on the solid foundation of supply recovery but on the fragile expectation that the conflict might be contained.

Fundamentally, the EIA has clearly pointed out that the scale of actual supply disruptions caused by the Middle East conflict remains as high as millions of barrels per day, and blocked shipping has forced regional producers to shut in wells and accumulate abnormal inventory, indicating that the global oil system is still in a state of imbalance. At the same time, the US market is experiencing a structural divergence of "crude build, product draw," reflecting the ongoing resilience of the refining sector and end-user demand. In particular, tightness in the diesel market has further strengthened the bottom support for oil prices. On the supply-side adjustment capacity front, US shale producers continue to maintain capital discipline, preventing high oil prices from rapidly translating into production growth, which shows that the market lacks effective marginal supply sources in the short term.

However, the marginal changes in geopolitical risk are what truly dominate price volatility. Whether it is a temporary ceasefire agreement, expectations of shipping recovery, or subsequent negotiation breakdowns and escalating military threats, all directly impact oil price trends through risk premiums. Especially after the ultimate breakdown of US-Iran negotiations, the market realized once again that the conflict is difficult to quickly resolve through diplomacy, leading to the re-incorporation of supply disruption risks into the core pricing and driving a short-term price rebound.

Overall, the current crude oil market is not in a supply-demand cycle dominated by fundamentals, but rather in a state of high volatility and high right-tail risk driven by geopolitics. Even if prices undergo significant corrections in the short term, against the backdrop of supply disruptions not being fully resolved, slow progress in shipping recovery, and continuous spillovers of regional conflicts, the center of gravity for oil prices will remain higher than pre-conflict levels. Future trends will rely heavily on the actual transit conditions in the Strait of Hormuz and marginal changes in US-Iran relations, leaving the overall market in a fragile and unstable state.