Oil prices experienced a volatile session on Tuesday, initially falling before recovering to close higher for the second day in a row. During the Asian and European trading hours, prices dropped by over 2%, erasing most of the gains from Monday's session. However, a late-session rebound saw prices recover all losses, ending the day in positive territory. While a cautious, wait-and-see mood persists in the crude market, the underlying demand for a price recovery is increasingly influencing the market's rhythm.

The previously discussed US-Iran memorandum of understanding, which failed to materialize last week, faces new complications this week. On Monday, Tehran's negotiation team decided to halt information exchanges with the United States through intermediaries. Despite this, the former US President maintained that he believes an agreement with Iran will be reached "within the next week." Iran has stated it is still evaluating the final text of the memorandum and has not yet responded to the US side. Sources emphasize that Iran, drawing on past experience, seeks tangible benefits. The question remains whether significant concessions will be made.

A spokesperson for Iran's Revolutionary Guard stressed that Iran's sovereignty over the Strait of Hormuz is fully established and has not been weakened. Sovereignty and control over the strait are considered a symbol of the Guard's power. Deputy Commander of the Iranian Armed Forces Central Headquarters, Mohammad Jafar Asadi, stated that a resumption of military operations with the US is inevitable. Iran's increasingly assertive stance suggests the market holds little expectation for a deal this week. A growing number of institutions are now projecting the reopening of the Strait of Hormuz to occur in the second half of the year.

Data from several third-party agencies shows China's crude oil imports in May decreased by approximately 6 million barrels per day compared to March. Shipping tracking data from Kpler indicates that China's average daily seaborne crude arrivals in May 2026 plummeted to 6.36 million barrels, the lowest level in nearly a decade since October 2016. The decline in China's crude imports has somewhat alleviated the upward pressure on oil prices caused by supply shortages, underscoring the role of the Chinese market in moderating price volatility. Furthermore, elevated oil prices and a weaker economic outlook are translating into reduced demand for transportation fuels, which is partially offsetting the upward price pressure from supply-side tightness.

However, the ongoing drawdown in global oil inventories is attracting increasing attention from institutions. The head of the International Energy Agency's Oil Industry and Markets Division stated on Tuesday that if oil shipments through the Strait of Hormuz cannot resume, the trend of falling inventories will persist into the summer. Global oil inventories could potentially drop to extremely low or historically low levels before the peak summer demand season arrives. This implies that oil prices still face significant upward pressure. If the US-Iran negotiations fail to see a breakthrough soon and the strait remains closed, mere expectations for peace will be insufficient to prevent an eventual upward move in prices.

While efforts to keep negotiations alive continue, geopolitical maneuvering continues to introduce uncertainty. Investor attention is gradually shifting towards factors that are detrimental to the peace talks. Continued attacks on commercial vessels, the persistent blockage of the Strait of Hormuz, further delays to its reopening, and sustained inventory declines are prolonging the supply-demand imbalance. Oil prices have rebounded from the lower end of their recent high range. Market participants are advised to pay close attention to the pace of these moves and strengthen their risk management.

Daily Market Movements

WTI crude oil futures rose by $1.60, or 1.74%, settling at $93.76 per barrel. Brent crude oil futures gained $1.02, or 1.07%, closing at $96.00 per barrel. INE crude oil futures in China declined by 0.41%, ending at 603.6 yuan.

The US Dollar Index increased by 0.03% to 99.22. The USD/CNH rate on the Hong Kong Exchange fell by 0.03% to 6.7545. The US 10-Year Treasury yield was unchanged, with the note price at 109.73. The Dow Jones Industrial Average advanced by 0.45% to close at 51,307.79.

Recent Key Developments

The head of the IEA's Oil Industry and Markets Division warned that if the current pace of inventory drawdowns continues, global oil stocks could fall to extremely low or record-low levels before the peak summer demand season. He noted this trend would persist through the summer if oil shipments through the Strait of Hormuz do not resume. Data shows China's May crude imports fell by 6 million barrels per day compared to March. He also observed that high oil prices and a weak economic outlook are reducing demand for transport fuels, raising the possibility of reaching critical inventory levels before the summer peak.

A senior executive from ADNOC stated that August could be a turning point for a significant oil price surge if demand recovers and the supply crisis stemming from the Iran conflict persists. Given the current situation, a highly optimistic outcome is difficult to predict. Even if the Strait of Hormuz fully reopens, restoring all parts of the value chain would take 6 to 12 months. As long as uncertainty about the peace situation remains, shipping volumes will stay partially suspended, below pre-conflict levels.

South Korea's Ministry of Trade, Industry and Energy announced it will extend its crude oil swap mechanism with private companies until the end of June due to continued instability in the Strait of Hormuz. The mechanism, launched in April to stabilize domestic fuel supply after the Iran conflict erupted, involves the government lending part of its Middle Eastern crude reserves to refiners, who later replenish the stockpile when they secure alternative supplies. Initially planned for two months until the end of May, the mechanism has facilitated trades totaling 21 million barrels of crude. South Korea has secured about 85% of its pre-conflict crude reserves, sufficient to meet July's demand, with no major supply disruptions expected in August.

Shipping data showed Venezuela's oil exports rose slightly to 1.25 million barrels per day in May, marking the third consecutive month of growth, primarily driven by increased shipments to the United States, India, and Europe. As the US eases sanctions and foreign companies expand oil and gas projects in Venezuela, the country's crude production and exports have rebounded this year. The oil ministry forecasts production will reach 1.37 million barrels per day by year-end, a 22% increase from 1.12 million at the end of 2025, a level not seen since the US first imposed energy sanctions in 2019. May exports were up 0.7% from April and 61% year-over-year. The US remained the top destination (approximately 558,000 bpd), followed by India (427,000 bpd) and Europe (169,000 bpd), with imports into all three regions higher than in April.