SunSirs: Geopolitical Risks Significantly Cool Down, Crude Oil Prices Drop by Over 3%
On Tuesday, September 29th, due to signs of recovery in Middle East crude oil exports, the advancement of indirect talks between the US and Iran, and the combined negative effects of the US plan to release strategic reserves, international oil prices fell sharply, with WTI falling below the $90 mark and both benchmark crude oils falling back to stage lows.
- Market trend
September 29th at 14:30 New York time (September 30th at 02:30 Beijing time): NYMEX November WTI crude oil futures: down $3.22, down 3.48%, settled at $89.38 per barrel; ICE November Brent crude oil futures: down $2.69, down 2.6%, settled at $102.59 per barrel; The Brent contract fell by $1.67 in December, with a settlement price of $96.16 per barrel.
- Trend analysis
Middle East export channels resume, supply risks significantly lower
The core driving force behind this round of oil price decline is the improved prospects for Middle Eastern crude oil exports and the rapid disappearance of geopolitical supply premiums. Saudi Arabia resumes oil loading at Yanbu Port: According to traders and shipping data, after the resumption of operation of Saudi Arabia’s east-west oil pipeline, oil tankers have resumed loading from Yanbu Port in the Red Sea, greatly improving the prospects for Middle Eastern exports. Practitioners say that the increase in Saudi Arabia’s east-west pipeline oil production has put pressure on futures prices, and the US Iran negotiations continue to advance. Although the positions of both sides are far apart, they are seeking ways to withdraw from the conflict – “the more oil flows out of the Middle East, the less bargaining chips Iran has in negotiations.
The export volume of the Middle East has rebounded to a high level since before the war: Kpler data shows that the crude oil exports of Middle Eastern oil producing countries in September have rebounded to 16.328 million barrels per day, the highest level since the outbreak of the US Israel war against Iran at the end of February, and the recovery of supply has been verified by data.
The United States plans to release up to 40 million barrels of strategic reserves through a ‘swap’
The Office of Strategic Petroleum Reserve Project Management of the US Department of Energy issued an invitation announcement on the 29th, planning to release up to 40 million barrels of crude oil to the market through a “swap”. This batch of releases is part of a broader agreement between Washington in March to lend 172 million barrels and about 30 member countries of the IEA (releasing 400 million barrels globally). In June, the United States proposed to lend out the last 40 million barrels involved in the agreement, but the company only agreed to borrow about 500,000 barrels. Energy Secretary Kleit stated that the United States and Japan have fulfilled their commitments, but “several European member states have only released a small portion of the promised crude and refined oil. This further alleviates market concerns about supply shortages.
Multiple measures taken by the United States to curb diesel and gasoline prices
To curb the surge in oil prices caused by the conflict, the US has taken multiple measures: urging the EU: the White House has urged the EU to use emergency diesel stocks to lower global prices, accusing some EU member states of not releasing their reserves in full as promised.
Relaxing regulation: The United States is considering allowing wider sales of dyed red diesel (with some buyers exempt from federal fuel taxes) as one of the measures to curb the sharp rise in prices and as a major alternative to the ban on diesel exports. On that day, European diesel futures fell slightly, while US diesel futures rose by 2.6%, indicating a divergence in market trends between the US and Europe.
Progress of US Iran indirect talks
There are signs of diplomatic easing in the US Iran situation: Trump confirmed to the media at the White House on the 28th that US Iran negotiators have exchanged information through mediators, and indirect talks began on the morning of the 28th; Iranian Foreign Minister Aragorzi led a delegation to meet with the mediator in New York to discuss the latest proposal. But Trump denied media reports that he was “willing to lift sanctions and unfreeze funds in exchange for Iran’s nuclear concessions,” making it clear that he did not impose any conditions on Iran to end the conflict. While the diplomatic process is advancing, there are still differences in the bottom line between the two sides, leaving uncertainty for oil prices.
Inventory data: API shows unexpected increase in US crude oil and gasoline inventory
The American Petroleum Institute (API) report shows that as of the week ending September 25th, crude oil inventories increased by 1.02 million barrels (market expectations for a decrease of 264,000 barrels, unexpected accumulation); Gasoline inventory increased by 2.99 million barrels (expected to decrease by 500,000 barrels, exceeding expected cumulative inventory); The inventory of distillate oil decreased by approximately 286,000 barrels (expected to decrease by 200000 barrels). The overall API data is bearish, and the accumulation of finished oil storage further confirms the marginal weakening of terminal demand, which is mutually confirmed by the decline in oil prices. The official EIA weekly report will be released on Wednesday at 22:30 Beijing time, which is a key verification milestone for the follow-up.
- Future prospects
The crude oil analyst of Shengyi Society believes that the core contradiction of short-term oil prices has shifted from the “geopolitical supply panic” to the repricing stage of “geopolitical easing+supply recovery+weak demand”. The short-term trend is that the geopolitical premium continues to decline, and the center of gravity of oil prices has significantly shifted downwards.
The future is still a mix of long and short, with negative factors such as Saudi Arabia resuming oil loading, Middle East exports rebounding, US Iran talks advancing, and the US planning to release strategic reserves. There are also benefits such as ongoing differences in US Iran negotiations, ongoing Middle East conflict, and incomplete resolution of supply interruption risks. Overall, considering the current supply and demand fundamentals, as well as the uncertainty of risks, there should be limited room for further deep declines in oil prices, and it is not advisable to overly bearish on the market.
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