Price Trend Summary

• Early First Week: Oil prices initially dropped by 4% due to US President Trump posting on Truth Social that negotiations for a temporary agreement between the US and Iran to extend the ceasefire and reopen the Strait of Hormuz were "progressing smoothly." However, prices quickly reversed upwards following US military strikes on southern Iran.
  Mid First Week: According to Axios, the US and Iran reached a preliminary consensus on a 60-day Memorandum of Understanding (MOU). US Secretary of State Marco Rubio stated that some progress had been made in negotiations with Iran, but Donald Trump emphasized that differences still exist between the two sides that need to be resolved. Iranian media and semi-official news agencies also indicated that consensus had not yet been reached on some core issues. Although a formal agreement has not been finalized, the market observed a slight recovery in shipping activities, reinforcing expectations of an end to the conflict and the reopening of waterways, which drove international oil prices down by over 5% on Wednesday.
  Late First Week: The Iranian Revolutionary Guard claimed to have launched strikes on US air bases; the US Central Command subsequently stated that ballistic missiles fired by Iran at Kuwait had been successfully intercepted, and Iranian drones were also shot down. Intraday oil prices briefly rose due to news of the military conflict. Nevertheless, diplomatic progress ultimately dictated the closing trend for the day, with the market betting that the US, Israel, and Iran were about to reach a ceasefire agreement and push for the resumption of navigation in the Strait of Hormuz, causing oil prices to close lower. Brent cumulatively fell by about 11% this week, the largest single-week drop in 7 weeks; WTI plunged over 9%, the biggest single-week decline in 6 weeks. Both major benchmark oil prices dropped to their lowest levels since mid-April.
• Early Second Week: Iran and the US continued to launch mutual military strikes recently, while Israel expanded its military operations against Hezbollah. Iran stopped exchanging messages with Washington through third parties and coordinated with allies to plan a complete blockade of the Strait of Hormuz, driving oil prices to surge by more than 6% at one point. However, Trump later denied knowing that negotiations had been suspended and stated that through intermediaries communicating with Hezbollah, a commitment had been secured that they would not attack Israel. These statements temporarily cooled market sentiment, causing oil prices to fall back from their intraday highs.
  Mid Second Week: Iran launched ballistic missiles at Kuwait and Bahrain. At the same time, the US military launched strikes on Iran's Qeshm Island, sparking market concerns about further escalation of regional conflicts. This drove a sharp rebound in oil prices, with Brent approaching 99 USD per barrel at one point, and WTI surging to a high of 97 USD per barrel.
  Late Second Week: With Israel and Lebanon announcing an agreement to implement a ceasefire, the market quickly shifted focus to the possibility of de-escalating regional tensions, believing this progress would help eliminate one of Iran's main negotiating conditions, thereby pushing Washington and Tehran to resume more substantive peace talks. This drove oil prices down from their recent highs. Although reports on Friday suggested an explosion caused by a suspected drone attack at an Omani oil export terminal, the Petroleum Development Oman quickly clarified that port operations were completely normal, calming the market's overreaction. On the other hand, Lebanon's Hezbollah refused to accept the US-brokered Israel-Lebanon ceasefire agreement. However, market concerns over further escalation between the US and Iran eased, leading to crude oil prices falling for the second consecutive trading day.

US Crude Oil Data Update

Exports and Refinery Crude Inputs Drove Substantial Crude Inventory Destocking, While Refined Product Demand Remained Relatively Weak

According to the EIA's "Weekly Petroleum Status Report," for the week ending May 22, US commercial crude inventories decreased by 3.327 million barrels, with inventories at the Cushing delivery hub simultaneously dropping by 2.79 million barrels. For the week ending May 29, crude inventories further plummeted by 7.974 million barrels to 433.7 million barrels, far exceeding the market's expectation of a 2.9 million barrel drop and marking the largest single-week inventory decline since February this year; Cushing inventories also fell by another 583,000 barrels. The primary reasons for the continuous sharp decline in crude inventories come from high-intensity refinery operations and strong export demand. The US refinery utilization rate rapidly rose from 91.6% to a high level of 94.7%, and refinery crude inputs once increased by 652,000 barrels per day to approximately 17 million barrels per day, reflecting operators preemptively raising processing volumes in anticipation of the summer driving season. Furthermore, buyers in Asia and Europe continued to seek alternative supplies outside of Middle Eastern crude, pushing US crude exports up to a high of around 5.9 million barrels per day. The massive exports further accelerated inventory outflows along the Gulf Coast, indicating that the global physical crude market remains tight. If including the SPR, overall US inventories declined by approximately 28.35 million barrels over the two weeks, all illustrating that the physical crude market is in a highly constrained state.

Regarding refined products, data over the two weeks showed a clear divergence. First, for the week ending May 22, gasoline inventories decreased by 2.572 million barrels, a larger drop than market expectations, mainly driven by the Memorial Day holiday which boosted retail gasoline demand, bringing US gasoline inventories below the five-year average. However, for the week ending May 29, gasoline inventories unexpectedly increased by 3.36 million barrels, primarily due to increased refinery processing volumes and sluggish demand following the Memorial Day weekend, leading to a rise in fuel stockpiles. The distillate market saw a similar shift: inventories fell sharply by 2.107 million barrels for the week ending May 22, mainly affected by logistics activities and shipping demand; but for the week ending May 29, as distillate production rose to about 5.2 million barrels per day, coupled with limited growth in freight and industrial demand, distillate inventories conversely increased by 1.5 million barrels. Overall, the crude market continued to show tight supply and strong destocking, but demand in the gasoline and diesel markets was relatively weak.

On the supply side, US drilling activities continued to recover. The rig count increased to 431 for the week ending June 5, marking six to seven consecutive weeks of growth, the longest continuous growth cycle since 2022. The driving factors mainly stem from the recent high oil prices and the escalation of geopolitical risks in the Middle East, leading the market to expect future supply to potentially tighten. This improves the return on investment and forward price locking conditions for shale oil operators, thereby prompting companies to gradually increase capital expenditures and drilling activities. However, because the US shale industry has continually depleted DUC (Drilled But Uncompleted) inventories in recent years, it takes time for new wells to go from drilling and completion to actual production. Even if the rig count continues to increase, it does not mean short-term crude production will immediately grow significantly. Therefore, while the short-term recovery in drilling activities helps stabilize future supply, it is insufficient to reverse the current trend of continuously declining crude inventories and a tight physical market.

Important News & Current Events

US-Iran Conflict Update: No Substantive Negotiation Results from Both Sides Yet

Although the US-Iran conflict has not escalated into a full-scale war recently, the situation remains highly unstable. At the end of May, reports surfaced that the US and Iran were close to reaching a 60-day extended ceasefire framework, which might include reopening the Strait of Hormuz, Iran assisting in clearing mines, the US partially relaxing port and oil export restrictions, and utilizing the ceasefire period to continue negotiations on the nuclear program. However, because the two sides never officially signed an agreement, and major differences still exist on issues such as the disposal of highly enriched uranium stockpiles, nuclear facility monitoring mechanisms, sanctions relief conditions, and long-term arrangements for the Strait of Hormuz, the related agreements have yet to materialize. US President Trump and Secretary of Defense Hegseth have repeatedly stated that if diplomatic negotiations fail, the US retains the option of resuming military action; on the other hand, Iran continues to use transit rights through the Strait of Hormuz, frozen assets, and issues related to Lebanon's Hezbollah as bargaining chips, further increasing the difficulty of negotiations. Entering June, although both sides maintained the ceasefire framework established since April, localized military friction has not stopped. Iran once threatened to halt negotiations conducted through third parties and used a complete blockade of the Strait of Hormuz as a means of pressure; the US military continued to maintain high-intensity deployments in the Persian Gulf, intercepting drones and responding to missile threats around Hormuz. Meanwhile, Hezbollah rejected parts of the ceasefire arrangement, and border clashes between Israel and Lebanon continued to recur, tightly binding Iran's Lebanon front with US-Iran negotiations. Even though Trump stated in early June that negotiations had entered the final stage, the Iranian side emphasized that no substantive progress had been made; on June 7, Iran and Israel even erupted into missile and airstrike conflicts again, indicating that the current ceasefire is still quite fragile.

Commentary: From a market perspective, the oil price risk premium since late May has retreated compared to the peak of the war in April, reflecting investors' belief that the probability of eventually reaching some sort of ceasefire arrangement is higher than a full-scale war. However, the market also recognizes that current negotiations are more of a transitional plan—maintaining a ceasefire first and addressing the navigation issue in the Strait of Hormuz to buy time for nuclear talks—rather than a final agreement that truly resolves the US-Iran conflict. The nuclear program, highly enriched uranium stockpiles, and regional proxy armed groups remain the core disputes that are hardest to break through. Therefore, even if a formal agreement emerges in the coming weeks, geopolitical risks in the Middle East will be difficult to completely eliminate. In the short term, the market will repeatedly revise oil price expectations due to localized military conflicts, but considering that the US simultaneously faces multiple factors such as energy prices, inflation pressure, and political considerations, pushing for a ceasefire and maintaining stable crude supply remain in its overall interest. Therefore, the higher-probability scenario is still that the two sides will eventually reach some form of extended ceasefire or phased agreement, but the nuclear issue may continue to be delayed, causing the crude oil market to maintain a relatively tight and high-risk-premium structure for some time to come.

US Plans to Use Frozen Iranian Assets to Compensate Gulf Countries for Losses

According to a report by Reuters, an unauthorized senior US official stated that US Treasury Secretary Scott Bessent has asked the relevant team to assess the economic damage caused to Gulf allies by Iran's recent military actions and study whether Iranian-related assets can be used to pay for subsequent restoration costs. However, the official did not specify the exact scope of assets currently under review by the Treasury, and the phrasing suggests that the assets the US is considering using may not be limited solely to existing frozen Iranian funds. It is worth noting that a day before this news broke, Mohsen Rezaei, an advisor to Iran's Supreme Leader, stated in an interview with CNN that one of the keys to whether the US and Iran can reach a peace agreement lies in whether the US is willing to unfreeze approximately 24 billion USD of Iran's overseas assets. Since the US and Israel launched military operations against Iran on February 28, Iran and its proxy forces have continued to launch missile and drone attacks on regional oil facilities, industrial infrastructure, and US military bases. Gulf countries such as Saudi Arabia, the United Arab Emirates, Kuwait, and Bahrain have all suffered varying degrees of damage. The market believes that if the US ultimately decides to divert frozen Iranian assets for regional reconstruction, it will further increase the negotiating pressure on Tehran during ceasefire and peace talks. However, against the backdrop of renewed mutual attacks between the US and Iran this weekend, the already fragile ceasefire negotiation process may face new uncertainties.

Commentary: This measure could make US-Iran negotiations even more complicated. For Iran, the approximately 24 billion USD in frozen assets has always been seen as an important bargaining chip in diplomatic negotiations. If the US further discusses converting them into a reconstruction fund, it will inevitably be viewed by Tehran as a major challenge to its right of asset disposal, thereby increasing the difficulty for both sides to reach a peace agreement. Especially under the circumstance that the US and Iran still have ongoing military conflicts recently, any policy involving asset confiscation or transfer could provoke Iran to adopt a tougher negotiating stance. Although the market has gradually digested the supply shock brought about by the conflict recently, if US-Iran relations further deteriorate over the asset issue, oil infrastructure, shipping routes, and energy exports in the Persian Gulf region in the future remain at risk of being attacked again.

IEA States Oil Investment Will Decline for the Third Consecutive Year Due to War Impact

According to the annual "World Energy Investment" report released by the IEA, global energy investment is projected to slightly increase to 3.4 trillion USD in 2026, but investment in oil projects will decline for the third consecutive year, dropping below 500 billion USD. After the US-Israel conflict with Iran caused the Strait of Hormuz to be effectively blocked, affecting about 20% of global seaborne crude oil transport, the energy market faced a supply shock and price surges, prompting countries to adjust their investment directions. The IEA pointed out that funds are accelerating into power grids, energy storage, low-carbon fuels, nuclear power, renewable energy, and electrification; meanwhile, natural gas investment rose to 330 billion USD—a ten-year high—driven by LNG projects in the US and Qatar. In the Middle East, the war not only weakened export revenues but also forced oil-producing nations to seek new export routes, and the reconstruction costs following damage from the conflict may reduce their capital inputs for overseas energy and infrastructure projects.

Despite persistently high oil prices, global oil investment is expected to fall for a third straight year and drop below 500 billion USD, reflecting market doubts about the sustainability of oil prices, long development cycles, supply chain bottlenecks, and the risk of stranded assets, leading capital to become increasingly conservative about the long-term prospects of oil. In contrast, natural gas has become the biggest beneficiary. Due to its flexible transfer capabilities, LNG is viewed as an important transitional fuel in the era of energy security, though new supplies may be delayed due to conflict, engineering delays, and rising financing costs. On the other hand, of the total global energy investment, approximately 2.2 trillion USD is expected to flow into power grids, energy storage, nuclear energy, renewable energy, and electrification, indicating that clean energy has become the main investment focus. However, coal investment still rose to 180 billion USD, the highest since 2012, highlighting the transitional compromises made under energy security pressures. For Middle Eastern oil-producing countries, the war has not only weakened export revenues and the reliability of the Strait of Hormuz but also forced them to pour huge sums of money into building alternative export routes and domestic reconstruction, which may compress their future capacity for overseas energy and infrastructure investment.

Conclusion

Overall, the main reason for the short- to medium-term pullback in oil prices currently comes from the market gradually pricing in scenarios such as an extended US-Iran ceasefire, the resumption of navigation in the Strait of Hormuz, and de-escalating regional conflicts. However, looking at physical data, the continued rapid decline in US crude inventories, high refinery demand, increased global demand for alternative supplies, and an increase in oil rigs that is still insufficient to quickly translate into new production all indicate that the supply side remains relatively tight. On the other hand, US-Iran negotiations still face major differences on core issues like the nuclear program, highly enriched uranium stockpiles, frozen assets, and proxy armed groups. Even if a phased ceasefire agreement is reached in the future, it does not mean that geopolitical risks will completely disappear. At the same time, the IEA expects global oil investment to decline for a third consecutive year, showing that the growth of new supply capacity in the coming years may still be limited. Therefore, the recent oil price pullback is more akin to a correction of the war risk premium, rather than a fundamental weakening of the fundamentals. Against the backdrop of the Middle East situation not being entirely stable, global crude investments trending conservative, and the physical market maintaining destocking, international oil prices will still have a considerable degree of support in the medium to long term, and the environment of high oil prices and high volatility is unlikely to significantly change in the short term.