Market Overview Oil prices experienced a significant decline on Monday, with trading activity in European and American markets concluding early due to a holiday. The drop was largely driven by market expectations pricing in a potential Memorandum of Understanding (MoU) between the United States and Iran. Although former U.S. President Donald Trump stated early Monday that a U.S.-Iran deal was "not yet fully finalized," the market perceived a markedly increased likelihood of a ceasefire, leading investors to lower their oil price forecasts. However, underlying disagreements on specific details have kept investors highly vigilant, as any sudden changes could trigger substantial volatility in oil prices at any moment.
Negotiation Developments Iran's chief negotiator, Kamal Kharrazi, and Foreign Minister Hossein Amir-Abdollahian met with the Qatari Prime Minister in Doha on Monday to discuss a potential agreement to end the conflict. Reports suggest that, mediated by Qatar, the U.S. and Iran have reached an understanding regarding the unfreezing of Iranian financial assets, a step that could facilitate a broader agreement. Donald Trump stated that negotiations with Iran were "progressing well" and revealed he had requested countries such as the United Arab Emirates, Qatar, Pakistan, Egypt, and Jordan to sign the Abraham Accords—a series of agreements normalizing relations with Israel—as part of U.S. efforts to secure a deal with Iran. Nevertheless, Saudi Arabia has repeatedly emphasized that it will not normalize relations with Israel unless a Palestinian state is established. Trump remarked that any agreement with Iran would either be "great and meaningful" or no deal would be reached at all, warning that failure could lead to a resumption of hostilities on a scale "more massive and intense than ever before—something nobody wants to see!" It is widely acknowledged that both the U.S. and Iran desire to end the war; the current challenge lies in bridging the remaining points of divergence, likely requiring significant further concessions from the U.S. and appropriate compromises from Iran.
Supply and Demand Fundamentals On the supply and demand front, crude oil inventories are being rapidly drawn down. Although demand has been noticeably suppressed, the shortfall on the supply side remains pronounced, which limits the downside for oil prices. Until the Strait of Hormuz resumes normal traffic, even if current prices retreat due to expectations of reduced geopolitical tensions, tightening supply and demand conditions will continue to build upward pressure. The key to a sustained halt in price increases ultimately depends on the restoration of normal supply.
Despite a ceasefire lasting over a month and a half, the Strait of Hormuz remains effectively blockaded. Reaching a ceasefire agreement and reopening the strait has become an urgent requirement for the oil market. A breakdown in the current negotiations could plunge market sentiment back into panic, driving prices sharply higher—a cost deemed unacceptable. This is also why the market is inclined to believe that Trump will ultimately push for the implementation of a Memorandum of Understanding. The uncertainty surrounding the geopolitical situation makes oil prices prone to severe fluctuations; investors are advised to carefully manage their timing and strengthen risk controls.
Daily Market Movements 1. Due to the holiday, markets closed early. WTI crude oil futures fell by $6.30, or 6.52%, to settle at $90.30 per barrel. Brent crude oil futures dropped by $7.24, or 6.99%, to settle at $96.30 per barrel. INE crude oil futures declined by 3.04%, closing at 602.8 yuan. 2. The U.S. Dollar Index decreased by 0.36% to 98.98. The USD/CNY exchange rate at the Hong Kong Exchange fell by 0.21% to 6.7738. The U.S. 10-Year Treasury yield increased by 0.51% to 109.98. The Dow Jones Industrial Average rose by 0.58% to 50,579.7.
Recent Key Developments 1. Iran Clarifies No Transit Fees for Strait of Hormuz, but Security Services Will Be Charged; Negotiations on Strait Reopening Continue a. An Iranian Foreign Ministry spokesperson clarified on Monday that Iran does not intend to impose transit fees for passage through the Strait of Hormuz. However, it will provide a range of security and navigation services for which fees will be charged; therefore, the term "transit fee" is not applicable. b. The spokesperson explained that Iran and Oman are jointly developing a protocol or mechanism to ensure the safe passage of vessels through the strait, which is a responsible action in line with international law. This concerns the interests and national security of both coastal states as well as the common interests of the international community. c. These services include navigational assistance and necessary measures to protect the environment of the Strait of Hormuz, the Persian Gulf, and the Sea of Oman. Tehran and Muscat are negotiating to establish this mechanism and hope to reach a final agreement soon. d. Since the outbreak of the war, the strait has been blockaded by Iran, affecting the transit of approximately 20% of the world's oil. Last week, Iran permitted 20 to 35 vessels to pass daily. The U.S. and Iran are negotiating to end the war and reopen the strait, but Iran stated on Monday morning that signing an agreement is not imminent.
Intense Consultations Surrounding Strait of Hormuz Reopening Highlight Complex Interests a. The Omani Foreign Minister held a phone call with the EU High Representative for Foreign Affairs and Security Policy on Monday, during which they exchanged views and expressed support for efforts to restore navigation in the Strait of Hormuz and ease regional tensions. b. According to media reports, Iran is in discussions with Oman regarding management arrangements for the strait, involving the formal regulation of maritime traffic in this strategic waterway, which has been severely impacted since the war began. c. Several countries, including Oman, have expressed concerns over arrangements involving transit fees, noting that the Strait of Hormuz holds a special status as a natural strait under international maritime law. d. An Iranian delegation led by a Deputy Foreign Minister met with Omani officials in Muscat on Sunday to discuss both countries' commitment to a secure and sustainable reopening. Reports also indicate that the U.S. and Iran are close to reaching a consensus involving reopening the strait, unfreezing funds, and extending the ceasefire to negotiate a nuclear agreement.
2. Iran does not need, nor has it ever sought, U.S. recognition of its legal sovereignty over the Strait of Hormuz. Expecting the U.S. to formally acknowledge this reality is akin to expecting an adversary to officially certify the collapse of its own hegemony. The Iranian Foreign Ministry spokesperson stated that there is no guarantee Washington will honor its commitments, adding that Iran will not heed threats and will focus solely on safeguarding its own interests. A framework has been reached, but no one can assert that an agreement between the U.S. and Iran will be finalized soon. The potential Memorandum of Understanding lacks specific details regarding the management of the Strait of Hormuz. Iran is currently negotiating to end the war; nuclear issues are not presently under discussion. A senior Iranian diplomat indicated that if the U.S. fulfills its commitments under the potential MoU, the two sides would engage in 60-day negotiations covering nuclear issues and stockpiles of highly enriched uranium, in exchange for the lifting of U.S. sanctions and the unfreezing of assets.
3. Jeff Currie, Chief Energy Strategist at Carlyle Group, issued a stark warning during an interview with CNBC at the UBS Wealth Conference in Singapore on Monday: due to the impact of the Iran war, Asian oil inventories are nearing "minimum operating levels," with Europe to follow within weeks, and the U.S. potentially facing physical shortages by July. A global energy crisis is accelerating. He cautioned that the overall oil inventory data referenced by the market is highly misleading. A significant portion of global crude oil constitutes essential operational reserves required to ensure the safety of pipeline and storage tank systems and cannot be directly released into the market for trading. Currently, the available, tradable effective oil inventory is extremely tight. Since the outbreak of the Iran war this year, shipping through the Strait of Hormuz has been obstructed, significantly limiting energy exports from the Middle East and sustaining pressure on the global oil market. Regional refined product supply and demand dynamics have undergone dramatic changes. Currie pointed out that previously pressured diesel prices have continued to rise, now surpassing jet fuel prices. The supply tightness in the Singapore refined products market has shifted from jet fuel to diesel, highlighting increasingly prominent structural supply contradictions. Currie noted that Europe's current relief in energy supply is entirely dependent on U.S. crude oil exports, a buffering effect that is only temporary. With the onset of the summer peak demand season, Europe is expected to face energy supply tightness within a month. Furthermore, most of the crude oil released from the U.S. Strategic Petroleum Reserve has been exported to Europe, leading to continuous depletion of domestic inventories that cannot sustain market demand in the long term. A domestic oil shortage crisis is anticipated by July.