Price Trend Summary

• For the first week's oil prices, in the early stage, oil prices remained high, with Brent at around $106.73/barrel and WTI at around $99.89/barrel. This was mainly due to the continued breakdown of US-Iran negotiations, which dashed expectations for the resumption of transit through the Strait of Hormuz. On Tuesday, the UAE announced its withdrawal from OPEC. Oil prices briefly dropped 2-3% but quickly recovered their losses, as the market recognized that with the strait blocked, short-term supply could not substantially increase.
  In the mid-stage, Donald Trump claimed in an interview with Axios that the US would maintain a naval blockade on Iranian ports until Tehran agreed to sign a nuclear deal. This drove Brent crude futures up about 6% in a single day, closing at $118.03/barrel; WTI surged nearly 7% to $106.88/barrel. On the same day, the news that the UAE's withdrawal from OPEC had officially taken effect further exacerbated market uncertainty. Although the UAE promised to increase production in a "gradual and measured" manner, the sudden collapse of OPEC's internal coordination mechanism injected new uncertainty into the market.
  In the late stage, influenced by the US Central Command's report to Donald Trump on possible military options, the market expected the conflict to escalate and the blockade to be prolonged. In addition, as the deadline for the US War Powers Resolution approached, legal disputes over military action escalated between Congress and the executive branch. Coupled with Iran's tough stance that it would continue to control the Strait of Hormuz, policy uncertainty rose, though it did not push prices to new highs. Subsequently, news emerged that Iran had sent its latest peace proposal to Pakistan, causing oil prices to briefly fall. However, Donald Trump subsequently denied progress on the agreement, and the US announced sanctions on shipping bypassing the strait, limiting the decline.
• In the early part of the first week (Note: translated exactly as in the original text), international oil prices rose by over 6% after Iran attacked several ships from South Korea, the UAE, and other countries in the Strait of Hormuz, and launched drone strikes on major UAE oil facilities, causing fires. Subsequently, the US military indicated that under naval escort, two US commercial vessels had successfully passed through the Strait of Hormuz. The market focused on the gradual recovery of shipping in the Strait of Hormuz, and coupled with the fragile ceasefire between the US and Iran holding, oil prices pulled back slightly.
  In the mid-stage, reports emerged that the US and Iran were close to reaching a memorandum of understanding, and the Iranian Foreign Ministry confirmed it was reviewing the latest US proposal, marking the closest the two sides have been to an agreement so far. This led to a sharp pullback in international oil prices. Brent crude fell by 7.83%, briefly dropping below $100 intraday, the lowest since April 22; WTI fell by 7.03%. Both major benchmark oil prices hit two-week lows. EIA data showed inventory declines were lower than expected, but fundamental data was suppressed by diplomacy-driven news. Later, it was reported that Saudi Arabia and Kuwait had lifted restrictions on the US military's use of their airspace and military bases, allowing the US to restart escort operations, further depressing oil prices.
  In the late stage, the US and Iran exchanged fire again in the Strait of Hormuz, driving Brent crude up 3% at one point on Friday. However, as US President Trump stated that the ceasefire agreement remained in effect and Iran was evaluating the latest US proposal to end the war, the gains narrowed by the close. Brent crude futures closed up 1.23%; WTI futures rose 0.64%.

US Crude Oil Data Update

Continuous Destocking of Crude Oil and Refined Products, Refining Utilization Rate and Rig Count Slowly Rising

The US EIA oil market reports released for two consecutive weeks on 04/29 and 05/06 presented highly consistent signals: US crude oil and refined product inventories continue to decline rapidly, while refining activity has mildly recovered. This indicates that against the backdrop of restricted global supply, export demand and the physical supply gap are simultaneously expanding. Looking at the two weeks combined, US commercial crude oil inventories cumulatively decreased by approximately 8.54 million barrels, gasoline inventories fell by an aggregate of about 8.60 million barrels, and distillate inventories also cumulatively dropped by about 5.79 million barrels. The simultaneous massive destocking across these three major inventories shows that the US is becoming the primary buffer source for the global supply gap.

On the crude oil inventory front, for the week of 04/24, crude oil inventories plummeted by about 6.23 million barrels, far exceeding the market's initial expectation of a slight decline. This was mainly because US crude oil exports surged to a record high of about 6.44 million barrels per day, while imports dropped by about 328,000 barrels per day, creating significant net exports. For the week ending 05/01, crude oil inventories fell again by about 2.31 million barrels; although the decline was slightly lower than market expectations, it marked the second consecutive week of decreases. The core reason for the destocking over these two weeks remains the blocked transport in the Strait of Hormuz following the escalation of the Middle East conflict, which has forced European and some Asian buyers to increase their reliance on US crude and refined products, making the US the global alternative supply source. Although crude oil exports in the second week plummeted by about 1.68 million barrels per day compared to the previous week, this was mainly a normal pullback from historical highs, and the continued decline in Cushing inventories also indicates that supply in the physical US inland market remains tight.

Regarding refined products, the tightening of supply in the gasoline market is even more evident. Over the two weeks, gasoline inventories saw a combined massive decline of about 8.60 million barrels and have now fallen for 12 consecutive weeks. In the first week, gasoline inventories plunged by about 6.10 million barrels in a single week, mainly because the US is gradually entering the peak summer driving season, with gasoline demand noticeably heating up. Weekly gasoline supplied increased by about 1.40 million barrels per day to 9.11 million barrels per day. However, in the second week, although gasoline inventories dropped by another 2.50 million barrels, the implied demand—gasoline supplied—actually fell by about 290,000 barrels per day to 8.81 million barrels per day. This indicates that the inventory decline that week did not solely stem from end-user consumption; rather, it largely reflected the fact that spring maintenance and equipment shutdowns at some refineries had not fully concluded, coupled with some refineries shifting capacity toward diesel and jet fuel, as well as increased export demand, all leading to continuously tight gasoline supply. During the transition from spring to summer, it is already common to see low gasoline inventories, but this year it is additionally compounded by the Middle East conflict restricting global refined product supply, causing inventories to drop significantly faster than in normal years, which has also become one of the important reasons for the recent rapid rise in gasoline prices.

The distillate market is equally tight on supply, with a massive drop of about 4.50 million barrels in the first week, far exceeding market expectations, and a further decline of about 1.29 million barrels in the second week, bringing the overall inventory level down to one of its lowest ranges since 2005. Aside from strong ongoing US industrial, logistics, and agricultural demand, more importantly, export demand is exceptionally robust. The EIA shows that US distillate exports climbed to roughly 1.90 million barrels per day, hitting a record high. This indicates that with Middle East supply disruptions and Russian diesel exports still constrained by sanctions, Europe's and Latin America's dependence on US diesel has significantly increased. At the same time, the US is gradually entering the agricultural planting season, with increased agricultural activity in the Midwest further driving up diesel demand, keeping the already low distillate inventories under continuous pressure.

As for the supply side, although the refinery utilization rate has rebounded for two consecutive weeks, the magnitude remains relatively limited. It has currently risen to about 90.1%, with a combined increase of only about 1 percentage point over the two weeks. This shows that some refineries are indeed gradually completing maintenance and resuming operations, but the overall operating rate is still noticeably lower than the 92-95% range typically seen during periods of high oil prices. This means that the fundamental reason for the current rapid inventory decline is that under restricted global supply, demand growth—especially export demand—continues to outpace the speed of supply recovery. Furthermore, equipment maintenance, regional bottlenecks, and capacity constraints at some facilities also make it difficult for the US refining system to rapidly replenish refined product inventories in the short term.

On the other hand, Baker Hughes data for the week ending 05/08 showed that the total number of US oil and gas drilling rigs increased by 1 to 548, with oil rigs increasing by 2 to 410, marking the third consecutive week of increases. However, observing the year-over-year rate, the current number of rigs is still about 5% lower than the same period last year. This reflects that shale oil companies as a whole are still maintaining capital discipline and have not rapidly and substantially expanded production as they did in past high-oil-price cycles.

Important News and Current Events

1. Iran Rejects the US Proposal, Trump Calls Iran's Proposal "Unacceptable"

Iran had previously officially submitted a multi-page written response to the US, outlining its specific stance on the latest US ceasefire proposal. According to reports by The Wall Street Journal, the core of Iran's proposed plan is to first halt military conflicts and demand that the US simultaneously lift its blockade on Iranian vessels and ports to gradually restore commercial shipping in the Strait of Hormuz; regarding the nuclear issue, Iran hopes to postpone it for further negotiations over the next 30 days. Iran stated its willingness to dilute some of its highly enriched uranium, entrusting the remainder to a third country for safekeeping, and to accept a short-term suspension of uranium enrichment activities. However, it refuses to accept the US demand to halt uranium enrichment and dismantle domestic nuclear facilities for a lengthy 20 years. It also demands that if future negotiations break down or the US withdraws from the agreement again, the enriched uranium transferred abroad must be returned to Iran. On the economic and sanctions front, Iran demands that the US lift sanctions on Iranian oil exports and unfreeze Iranian funds blocked overseas. However, the Tasnim News Agency denied parts of the WSJ report regarding the nuclear material disposal plan, claiming the report was untrue. In response, US President Donald Trump publicly rejected Iran's counter-proposal on Truth Social, bluntly calling it "completely unacceptable." On the other hand, Benjamin Netanyahu stated that Israel and the US will continue to push for dismantling Iran's enrichment facilities, removing nuclear materials, and ending its nuclear weapons development capabilities.

Commentary: Overall, Iran believes that through its prolonged blockade of the strait and regional conflicts, it has proven the global energy market's high dependence on the Strait of Hormuz, thereby grasping a crucial bargaining chip in negotiations with the US. For Washington, the conditions proposed by Iran are practically tantamount to demanding that the US accept Iran as the dominant force in the Persian Gulf's security architecture; therefore, it is no surprise that the Trump administration views it as "completely unacceptable." However, Iran has actually also released some signals of limited compromise, such as being willing to dilute some highly enriched uranium, move part of its stockpile to a third country, and discuss a limited restoration of shipping in the strait. It's just that its bottom line is refusing full denuclearization, preferring instead to retain some nuclear capabilities in exchange for long-term security guarantees. It is expected that it will be difficult for either side to make comprehensive concessions in the short term. Therefore, the most likely outcome is not a complete peace agreement, but rather a fragile, temporary arrangement. This would include a limited resumption of shipping, localized easing of Iranian oil sanctions, and a pause in Iran's escalation of nuclear activities, while nuclear facilities and regional military issues may be deliberately postponed. For the US, if the conflict continues to escalate, it will drive up global oil prices and inflation, and pressure regarding the midterm elections will continue to heat up; but making too many concessions would impact the US's prestige within its Middle East alliance system. Therefore, the key over the next few months lies in whether normal shipping can be restored and whether China intervenes to mediate due to pressure from Trump. It is expected that the market will see safe-haven sentiment re-emerge early this week.

2. The Iran War is Consuming World Oil Reserves at an Unprecedented Rate

Due to the Iran War and the closure of the Strait of Hormuz, global oil supply has suffered a severe shock. Over two months, a cumulative loss of over 1 billion barrels of crude oil supply has occurred, causing global oil inventories to decline at a historically rare pace. Even if the conflict ends in the future, the overly low inventory levels will leave the global energy market continuously fragile for a long time to come. Morgan Stanley estimates that global oil inventories had previously been decreasing by an average of about 4.8 million barrels per day, setting a record for the fastest destocking pace since the IEA began keeping records, with visible global oil inventories nearing their lowest level since 2018. It is worth noting that the global oil system has an "Operational Minimum," which is the minimum amount of oil required to maintain the normal operation of pipelines, storage tanks, and export systems. Therefore, not all inventories can actually be utilized. JPMorgan warns that if transit through the Strait of Hormuz cannot be restored in the short term, OECD inventories may enter the operational stress zone next month and hit the "operational minimum level" by September.

• Currently, Asia is the region under the most pressure, especially countries highly dependent on imports and lacking reserves and refining capacity, such as Indonesia, Vietnam, and the Philippines. Some may even face fuel shortages within a month. The diesel issue is the most severe, as diesel is the core fuel for logistics, manufacturing, and transportation systems. Once supply falls short, it will directly impact economic activities and civilian transport. Meanwhile, inventories in China, Japan, and South Korea are relatively sufficient; China's crude oil inventories have even increased rather than decreased due to weak demand and the popularization of electric vehicles.
• Europe's bottlenecks are concentrated in aviation fuel. With the peak summer travel season approaching, jet fuel inventories at the ARA energy hub have dropped by one-third compared to pre-war levels, falling to a six-year low. As Asia and Australia are also heavily purchasing jet fuel simultaneously, global supply competition is growing increasingly fierce. The UK, Germany, and France have massive aviation demand but limited local production capacity, so they are seen as the most prone to facing supply crunches in the coming months.
• The US acts as the global supplier of last resort. With increasing exports, US crude oil inventories have fallen for four consecutive weeks, and distillate inventories have dropped to their lowest levels since 2005. Although shale oil producers have started to increase production, inventories are still likely to continue declining in the short term.

Commentary: To stabilize the market, governments previously coordinated the release of 400 million barrels from the Strategic Petroleum Reserve (SPR). However, further releasing inventories to push down oil prices will only accelerate the depletion of limited safety buffers. Taking the US as an example, out of the 172 million barrels of oil it promised to release, only about 79.7 million barrels have been utilized so far. Even if the Strait of Hormuz reopens in the future, market pressure will not necessarily disappear immediately. Because global inventories have been massively consumed, countries will inevitably actively replenish their inventories after the war, creating additional demand. It is expected that the world will continue to be in a "destocking" environment for several months after the war, but in the long term, it will shift into an "inventory restocking cycle." It cannot even be ruled out that some countries will raise their strategic reserves to above pre-war levels to prevent a recurrence of similar crises. Coupled with the fact that Persian Gulf oil-producing countries will still need time to restore domestic oil production capacity and exports, and that insurance premiums will remain high in the early stages of a successful peace negotiation, it is expected that even as the number of transiting ships recovers, it should still be significantly lower than pre-war levels. Therefore, it is expected that post-war oil prices will still have a certain level of support and remain high, rather than rapidly falling back.

Conclusion

Overall, although recent news of US-Iran negotiations and a ceasefire temporarily drove oil prices down, judging from Iran's rejection of core US demands, the US's continued maintenance of its naval blockade, and Israel's persistent stance on dismantling Iran's nuclear facilities, it remains difficult for the two sides to reach a truly comprehensive peace agreement in the short term. In the future, a fragile and repeating temporary arrangement is more likely to form. Under these circumstances, even if transit through the Strait of Hormuz gradually resumes later, the pressures facing the global oil market may not be quickly resolved. This is because global inventories have been significantly consumed over the past two months, and some OECD countries are gradually approaching their "operational minimum inventory" ranges, meaning the market's buffer capacity is declining. In the future, should the conflict escalate again, a new round of ship attacks occur in the strait, or negotiations break down once more, oil prices will rapidly surge upward again. On the other hand, even if supply gradually recovers after the war, countries may re-establish higher inventory levels due to strategic security considerations, creating long-term restocking demand. Coupled with the time required for Persian Gulf capacity restoration, shipping insurance, and maritime order to normalize, the global energy market is expected to remain in a tight pattern over the coming quarters. Therefore, while the short-term market may experience sharp corrections along with diplomatic news, medium-to-long-term oil prices still possess obvious support. A high-oil-price and high-volatility environment will become the norm for the global energy market for some time to come.