Yesterday (07/01), the most active Brent futures contract closed down approximately 1.8% at USD 71.57/bbl, while WTI settled at USD 68.60/bbl (–1.3%). The session extended the previous day's downward trend, with Brent testing support near pre-conflict levels.
This movement reflected market relief after Qatar confirmed "positive progress" in the Doha talks between the US and Iran concerning the Strait of Hormuz, reducing the risk premium that had supported prices since the conflict began in February. Flows through the Strait have returned to approximately 50% of pre-conflict levels, while releases of strategic reserves and still subdued demand from China further expand the bearish pressure on the global balance.
Around 08:10 AM this morning (07/02), Brent was trading at USD 70.51/bbl (–1.48%) and WTI at USD 67.52/bbl (–1.55%), reaching the lowest levels since February 27. Sentiment remains predominantly bearish, with investors pricing in a gradual normalization of Middle Eastern supply and a possible increase in OPEC+ production quotas starting in August.
US-Iran talks reduce risk premium
Talks in Doha between the US and Iran progressed on issues related to the memorandum that paused the conflict in June, with the next round scheduled after July 9. Despite this progress, there is no indication of a lasting peace agreement, and Iran reiterated that any US interference in the Strait of Hormuz would provoke a "decisive and rapid" response.
Why it matters: The normalization of flows through the Strait — already at 50% of pre-conflict levels, according to market estimates — is dismantling the risk premium that pushed Brent to USD 120/bbl at its peak, with the contract now testing pre-war support levels near USD 70/bbl. In the medium term, the speed of the Strait’s reopening and the durability of the memorandum will determine whether the market consolidates at this lower range or reverses to levels observed in previous weeks.
What to expect? The current scenario is one of persistent bearish pressure as flows through the Strait of Hormuz continue to normalize and strategic releases remain underway until July. If the memorandum is upheld and OPEC+ confirms another production increase in August, Brent is likely to remain at lower levels. If the agreement ruptures or there is renewed military escalation, futures may quickly return to higher levels given the global physical balance’s vulnerability at this time.
OPEC+ expected to raise production in August
OPEC+ is expected to approve a new increase in production quotas beginning in August at Sunday’s (07/05) meeting, enabling greater supply in an environment of falling prices and gradual reopening of the Strait of Hormuz. Meanwhile, Aramco resumed Ras Tanura loadings after nearly four months of interruption and offered 6 million barrels of crude for July delivery to Asian clients, moving to spot pricing to accelerate sales.
Why it matters: The Dubai discount to swap dropped USD 1.37 to USD 4.18/bbl — the largest since May 2020 — signaling excess Middle Eastern supply in Asia and compression of regional refining margins. The combination of Saudi volumes returning to the market together with signs of an increase in OPEC+ production quotas deepens expectations for higher export volumes through the Persian Gulf, limiting any potential price recovery.
What to expect? The market continues to closely monitor the physical flows situation in the Strait of Hormuz, with signs of a faster reopening than anticipated exerting additional bearish pressure on prices. Going forward, the evolution of OPEC+ production will be a key driver for futures market pricing, given uncertainties regarding the pace of supply resumption by some players in the region. The potential increase in quotas in August provides the market with the perception that the group may be betting on a faster recovery in supply, contributing to price declines in the short term.
US commercial inventories at the lowest since 2018; gasoline exceeds 9 mbpd
US commercial crude inventories declined by 3.8 million barrels in the week ending June 26, to 408.4 million barrels. Total US stocks, including strategic reserves, reached 734 million barrels — the lowest since May 1984 — following a cumulative draw of 120.7 million since the onset of the conflict with Iran.
Why it matters: US refinery utilization hit 96.6%, indicating robust domestic demand for processed crude, with the Cushing region continuing to hold storage levels at operational lows (~20 mbpd), rendering the system vulnerable to any new supply disruption. Gasoline demand surpassed 9.13 mbpd — a historically strong seasonal level — while diesel inventories surprised with a weekly increase, limiting the advance of the diesel crack spread.
What to expect? The combination of refineries operating near maximum capacity and low commercial inventories reduces the US’s short-term export capability, which may provide partial support for Brent even against a dominant bearish bias. Meanwhile, the need for the North American market to continue offloading fossil derivatives abroad amid strong domestic fuel demand is resulting in persistently elevated crack spreads, leaving little room for a retreat in indicators at this point.
Intraday variation of prices in the energy sector
Source: ICE, NYMEX. Prepared by StoneX.
