Geopolitical Risks Rapidly Eased; International Crude Oil Falls Below the $100 Mark on Wednesday

April 9th News

On April 8, the international crude oil market witnessed an epic plunge, with both WTI and Brent crude prices falling below the round figure of $100 per barrel. WTI’s daily price decline exceeded 16% in a single day. The primary drivers behind this sharp drop were the implementation of a temporary ceasefire between the U.S. and Iran, the rapid restoration of expectations for navigation through the Strait of Hormuz, and the unexpectedly large build-up in U.S. crude oil inventories. As a result, the market focused on unwinding the premium previously attached to geopolitical risks, causing both crude oil and refined product futures to plummet simultaneously.

I. Market Performance: Futures Plunge Across the Board; Risk Premiums Decline Sharply

On April 8, New York time, international crude oil futures plummeted. The settlement price for the May contract of U.S. WTI crude oil futures was reported at $94.41 per barrel, a price decrease of $18.54, or 16.4%. The settlement price for the June contract of Brent crude oil futures was reported at $94.75 per barrel, a price decrease of $14.52, or 13.3%. Both WTI and Brent prices fell below the key $100 mark.

Finished oil products weakened in tandem: In May, RBOB gasoline fell by 9.06% to $3.0059 per gallon, and heating oil dropped by 14.94% to $3.8084 per gallon. Refinery margins and product price spreads contracted simultaneously.

II. Trend Analysis: Geopolitical Easing Drives the Downward Trend; Expectations of Supply Bottlenecks to Be Lifted

U.S.-Iran Temporary Ceasefire Raises Expectations for Resumption of Shipping Through the Strait of Hormuz

Ninety minutes before Trump set the deadline for the attack, the U.S. and Iran, with Pakistan’s mediation, reached a two-week temporary ceasefire agreement: The U.S. suspended its airstrikes against Iran, while Iran pledged to fully and safely open the Strait of Hormuz. This waterway handles roughly 20% of the world’s daily oil supply; earlier conflicts had blocked the passage, causing massive congestion of oil tankers. With the ceasefire now in effect, the backlog of ships is expected to be cleared swiftly, alleviating the supply bottleneck and becoming a key factor behind the sharp drop in oil prices.

Meanwhile, Iran has indicated it may conditionally open the strait on April 9-10. Shipping companies and refiners have already begun coordinating logistics and consulting on the procurement of new vessels, and the anticipated resumption of physical supply is further weighing on oil prices.

U.S. crude oil inventories accumulate more than expected, providing downside support from the fundamentals.

As of the week ending April 3, the U.S. Energy Information Administration (EIA) inventory report showed that U.S. crude oil inventories rose by 3.081 million barrels, far exceeding the expected increase of 701,000 barrels. Total inventories reached 464.717 million barrels, hitting a new high since June 2023. Refinery utilization rates edged down slightly to 92%, while demand remained weak. This weak demand, coupled with improving supply conditions, amplified the downward pressure on oil prices.

III. Outlook for the Future Market

According to crude oil analysts, the recent sharp drop in oil prices is the result of a reversal in geopolitical expectations and a convergence of bearish fundamentals. The ceasefire between the United States and Iran, along with the expectation of navigation through the Strait of Hormuz, has significantly reduced supply risks, leading to the elimination of the geopolitical premium. Additionally, higher-than-expected inventories have reinforced the downward trend. Moving forward, it will be crucial to closely monitor the progress of geopolitical negotiations and shipping operations. Particularly, the attitude changes between the U.S. and Iran within the two-week window period are the key variables for the fluctuation of geopolitical risks. In the short term, influenced by these factors, the geopolitical risk premium has been cleared out, and oil prices are expected to oscillate below $100 as market participants adopt a wait-and-see approach. In the medium term, if the ceasefire negotiations fail and the strait is closed again, oil prices are likely to rebound quickly, challenging previous highs.