Price Performance Summary

In the first week (03/16-03/20), oil prices initially saw a corrective drop due to market expectations of a gradual shipping recovery after some tankers resumed passage through the Strait of Hormuz, alongside the IEA stating it might further release strategic reserves if necessary. Mid-week, oil prices surged due to an Iranian attack on the UAE's Port of Fujairah, which partially suspended fuel loading, and multiple allied nations rejecting Trump's request to send warships to escort vessels in the Strait of Hormuz. Subsequently, an Israeli attack on Iran's South Pars gas field triggered Iranian retaliation against surrounding energy facilities, with refineries and ports in Saudi Arabia, Qatar, and Kuwait coming under attack. Later in the week, prices retreated from their highs following news that the US government would release about 140 million barrels of stranded Iranian crude on tankers into the market by lifting sanctions, and that the US did not rule out tapping into the Strategic Petroleum Reserve (SPR) again. However, prices still maintained gains by Friday, closing at a near four-year high.

In the second week (03/23-03/27), oil prices initially saw a rapid pullback—with Brent crude even briefly dropping below $100—after Trump stated he had productive dialogue with Iran and postponed attacks on Iranian energy facilities by 5 days. The mid-week period saw violent fluctuations; on one hand, potential risks on the supply side remained high, including possible damage to Middle Eastern energy infrastructure and shipping uncertainties. On the other hand, the market was simultaneously weighing the possibility of avoiding military escalation. Later in the week, the US proposed a "15-point action list" to Iran as a basis for negotiations to end the war; however, Iran stated that no actual negotiations were taking place and that a viable peace plan was still lacking. Furthermore, the Pentagon planned to deploy airborne troops to the Persian Gulf to provide ground operation options, and Yemen's Houthi militants announced they were prepared to attack the Red Sea shipping lanes again in solidarity with Iran. This extinguished market hopes for de-escalation and a ceasefire in the Middle East, driving oil prices up.

Commentary: During the week, WTI crude prices fell relative to the upward trend of Brent crude. The reason is that US crude oil production is near historical highs and is supported by increased imports from Venezuela, coupled with the US releasing SPR and some traders closing positions early, putting pressure on prices. The spread between the two once approached $20. At this stage, the White House estimates the duration of the Middle East war at 4-6 weeks; it is too early for the US-Iran war to end, and the possibility of negotiations breaking down and escalating cannot be ruled out, along with continued military strikes by the US, Israel, and Iran. Considering that major upstream oil fields in Gulf countries have not been severely attacked—mostly undergoing voluntary preventative production cuts—and long-term crude futures prices have not risen significantly (mostly short-term contract geopolitical risk premiums), the current oil price rise is largely an emotional premium. Long-term actual supply and demand have not been significantly destroyed, and medium-to-long-term oil prices will primarily face a pullback.

Oil Market Data Update

Crude Inventory Builds Exceed Expectations, Gasoline Continues Destocking, Refinery Utilization Continues to Climb

• Recent EIA data shows the US crude market is experiencing a trend of "continuous crude inventory accumulation and sustained gasoline destocking," and the oil price trend diverges significantly from inventory fundamentals.
• US commercial crude inventory exceeded market expectations by accumulating approximately 13.06 million barrels over two consecutive weeks, pushing total inventory to 456.2 million barrels. This was primarily due to a significant increase in imports from Venezuela and Mexico in the first week. In the following week, even as imports dropped significantly by 730,000 barrels/day, robust domestic US production filled the gap. Increases in crude exports and refinery processing volumes were still insufficient to absorb the short-term supply increment, directly pushing up commercial crude inventories.
• Gasoline inventory drops over two consecutive weeks exceeded market expectations, plunging by about 8.1 million barrels. This reflects a slow recovery in spring travel demand and refineries transitioning to a seasonal destocking period. To clear storage tanks for summer-grade gasoline that complies with environmental regulations, refineries and distributors actively depleted existing inventories. Also, through exports to overseas markets, even though domestic US consumers reduced demand by 0.9% due to high oil prices, refineries could still lower inventories via exports and seasonal adjustments.
• Distillate inventory saw a minor build, increasing by about 200,000 barrels. This was mainly because refinery utilization rates rebounded to 92.9%, boosting distillate output. This indicates that US domestic industrial and logistics demand remains resilient but is still far below supply levels, resulting in a minor structural inventory build.
• Refinery utilization rates recovered to 92.9%, primarily because by late March, some refineries had completed equipment maintenance and successively restarted, thereby pushing overall utilization to high levels. Additionally, to prepare in advance for the peak summer driving season, refineries must build up sufficient inventories early.
• Despite recent bullish oil prices driven by geopolitical conflicts, the number of active US oil drilling rigs actually declined to 409. This is mainly because producers have shifted towards conservative capital discipline, focusing on maintaining free cash flow and ensuring shareholder returns. Furthermore, the crude oil futures market currently exhibits backwardation (short-term prices higher than long-term prices). Since there is a time lag of several months from capital investment in drilling to actual output, rushing to expand production could mean that if the war cools down and oil prices fall in the future, producers would not only struggle to lock in profits through the futures market but would also see their future cash flows significantly eroded.

Key News Commentary

US Allows Sale of Stranded Iranian Oil to Curb Rising Fuel Prices

The US Treasury Department issued a general license allowing the procurement of energy already on board vessels as of March 20, with the authorization valid until April 19. Previously, the US took similar measures allowing the procurement of seaborne Russian oil to alleviate fuel supply shortages caused by war. The Treasury stated the exemption for Iranian oil is a "narrowly scoped, short-term authorization permitting only the sale of Iranian oil currently stranded at sea," adding that the measure would release about 140 million barrels of oil, and Iran would struggle to access any resulting revenue. Iran disputed this figure, stating it has neither seaborne crude inventory nor surplus crude available for sale on the international market, and that the US move was merely to provide psychological support to the oil market. Alongside the sanction waiver, the Trump administration also released over 45 million barrels of oil from its SPR and temporarily waived a shipping mandate to reduce transportation costs.

Iranian oil has almost entirely been purchased by China, primarily by independent refiners buying at discounted prices. Theoretically, the US exemption policy broadens the buyer base. However, practically, any new buyer would face the challenge of structuring transactions and making payments while Iran remains under numerous restrictions. With the general license valid only until April 19—an extremely short window—insurance companies and shipping brokers may be entirely unwilling to establish new payment structures or provide letters of credit. As geopolitical tensions escalate, Iran has indeed increased seaborne cargo volumes. Yet, according to data intelligence firm Vortexa, the total volume of crude and condensate stored on seaborne tankers has been declining at a rate of about 1.8 million barrels per day since the war broke out in late February. Currently, this figure sits at about 78 million barrels, roughly one-third of Iran's reserves. The higher figure cited by the Treasury might refer to "offshore" oil reserves, and the 140 million barrels likely includes "in-transit crude" heading toward destinations (mainly China), meaning it may not reflect actual available volumes.

Overall Middle East Conflict Presents Highly Uncertain State of Parallel "Negotiation Deadlock and Military Escalation"

Although Iran once claimed that non-hostile vessels could pass through the Strait of Hormuz after coordination, actual shipping has not resumed, and one of the world's most critical energy transit chokepoints remains nearly paralyzed, placing substantial pressure on the crude supply chain. Diplomatically, the US proposed a "15-point action list" as a negotiation basis to end the war, which includes restarting strait shipping, eliminating Iran's highly enriched uranium stockpile, halting uranium enrichment, limiting its ballistic missile program, and cutting financial support for regional allies. However, Iran demands that the US first agree to a comprehensive ceasefire, commit to no further use of force, provide war damage reparations, and even acknowledge its control over the strait. This reveals a structural gap in their positions, making a substantive agreement unlikely in the short term. Meanwhile, the US continues to fortify its military deployment, including dispatching an additional 5,000 Marine Expeditionary Unit troops and about 2,000 troops from the 82nd Airborne Division to the Middle East. While officials state strategic goals can be met without ground combat, these actions show preparations for potential escalation, meaning the market cannot fully rule out ground war risks.

On the other hand, there are limited signs of easing within the region. For instance, Pakistan assisted in coordinating the passage of some vessels, and Saudi Arabia activated its East-West pipeline, reaching a full capacity of 7 million barrels per day to bypass the strait bottleneck and reroute tankers to Red Sea ports. While this partially mitigates the supply shock, overall alternative capacity is insufficient to fully make up for the blocked main route. Furthermore, the Red Sea itself harbors hidden risks due to the intervention of Houthi forces. Iranian-backed Houthi militants have fired ballistic missiles at Israel, officially entering the conflict. Although they haven't directly attacked Red Sea shipping yet, their capacity to threaten the Bab el-Mandeb Strait and Red Sea routes spreads energy transit risks from the Persian Gulf to another critical waterway.

Notably, Trump's order to delay military strikes on Iranian energy facilities by five days and signals of "major consensus" in negotiations have indeed lowered short-term market expectations of conflict escalation. However, Iran still views the US proposal as "one-sided and unfair," indicating that supposed progress remains in preliminary exploratory stages. Overall, the current situation could evolve along three paths: First, gradually advancing negotiations through third-party mediation to reach a ceasefire; Second, further US military escalation or even ground intervention, which—while potentially devastating to Iran—would significantly heighten the risk of retaliatory attacks on regional energy infrastructure, further disrupting global crude supply; Third, the US choosing a strategic withdrawal and declaring a phased victory, but this would practically strengthen Iran's control over the Strait of Hormuz and plant structural seeds for future conflicts, making it the least likely option. Compounded by multiple uncertainties, the market remains highly sensitive to supply disruption risks.

Conclusion

In summary, the current crude oil market faces a dilemma of geopolitical risk premiums, fundamentals, and policy interventions. Although EIA data shows larger-than-expected crude inventory builds, and the US government is actively deploying unconventional measures like releasing strategic reserves and briefly exempting seaborne Iranian crude to suppress prices, the psychological signaling effect of these short-term policies far outweighs actual supply increases. The Middle East war is currently trapped in a deadlock of "parallel political negotiations and military escalation," with a massive gap between the core interests of the US and Iran. As the Strait of Hormuz remains effectively paralyzed and the Red Sea crisis spreads, market fears of broken energy transport chains continue to brew. Overall, short-term oil price trends will continue to be hijacked by news of war developments and market panic, maintaining the risk of high-level volatility or even sudden upward spikes. However, considering that the core upstream facilities of major Gulf producing nations have not suffered devastating blows, current price surges are mostly emotional premiums. Once future multilateral mediations succeed or the war sees substantive de-escalation, medium-to-long-term oil prices will lose their support, inevitably reverting to supply and demand fundamentals and facing significant downward pressure.