July 27th, according to news,
On Friday, July 24, as hopes for a resumption of U.S.-Iran talks reignited in the market, the geopolitical panic that had built up earlier quickly subsided, prompting a sharp pullback in international crude oil prices. Brent crude oil fell from its level above $100 per barrel.
At the close of New York trading, NYMEX September WTI crude oil fell by $2.88, a price decrease of 3.12%, settling at $89.31 per barrel; ICE September Brent crude oil plunged by $3.91, a price decrease of 3.88%, closing at $96.78 per barrel, giving up all the price gains from the previous day when it had briefly climbed above $100.
Finished oil prices followed the downward trend in crude oil costs: In September, RBOB gasoline fell by 2.18%, settling at $3.2516 per gallon; heating oil dropped by 3.34% in September, closing at $4.0954 per gallon. All energy categories collectively gave up the gains they had previously posted amid risk-off sentiment.
The short-term emotional pullback does not change the bullish tone for this week; WTI crude oil posted a cumulative price increase of over 9% for the week, while Brent crude rose nearly 10%. The core driver behind this week’s sharp rally was the attack on Red Sea tankers and the resulting disruption to shipping through the two major shipping lanes. Friday’s decline was merely a concentrated realization of the short-term geopolitical risk premium, rather than an actual reversal in supply-and-demand fundamentals.
II. Core Logic: Restored Negotiation Expectations + Improved Navigation on Two Major Shipping Routes—Risk-Averse Capital Concentratedly Exiting
(1) Expectations of U.S.-Iran diplomatic de-escalation are rising, and market panic is rapidly dissipating.
The most critical factor for this round of decline is the increased probability of the long-stalled U.S.-Iran negotiations restarting. The market transactions exhibit a clear characteristic of "panic buying and quick profit-taking on positive news." Market analysts suggest: as long as there are signs of reconciliation, the funds that previously chased higher prices will concentrate on taking profits and exiting, to avoid the high-position risks brought by geopolitical fluctuations, which would lead to a risk of oil price correction.
Moreover, the fundamentals of crude oil have long been characterized by a fragile supply-demand balance marked by tight inventories. Market trends are highly dependent on news and developments; even marginal changes in geopolitical expectations can be magnified several times over in price movements. Currently, the market is merely reacting to an improved outlook for negotiations—yet no formal ceasefire agreement has been reached between the parties, and the root causes of the conflict remain unresolved.
(2) Shipping through the Strait of Hormuz and the Bab al-Mandeb is recovering, and the entire shipping route has not been completely closed.
Kpler vessel-tracking data confirms that shipping pressures are easing marginally, allaying market fears of a complete shutdown of the two critical energy chokepoints: the Strait of Hormuz. Over the past three days, the average daily number of vessels transiting the strait has remained steady at three. On July 23, two additional vessels entered the Persian Gulf, including large empty tankers. Vessel traffic continues to flow normally, and there is no sign of a full closure of the strait. Meanwhile, traffic through the Bab al-Mandeb Strait has shown clear signs of recovery: on July 23, the number of commercial vessels transiting the strait rose to 32, up from 26 the previous day, and normal vessel traffic continued on July 24 as well.
The Houthi armed group officially clarified that the Bab al-Mandeb Strait has not been closed. Previously, maritime controls were targeted solely at vessels traveling to and from Saudi Arabia—representing a targeted restriction rather than a full-scale blockade. UBS believes that with the waterway remaining open and the risk of an extreme supply disruption significantly reduced, the panic premium previously associated with a total port closure has naturally subsided.
(3) The stability of Saudi Arabia’s detour route has been confirmed, and expectations of a severe supply gap are easing.
Previously, Saudi Arabia relied on the Yanbu port on the Red Sea to divert crude oil exports and hedge against the impact of the Hormuz Strait blockade. The Houthi armed group has only restricted ships associated with Saudi Arabia, without completely disrupting all Red Sea shipping. As a result, Saudi Arabia’s alternative export routes for crude oil have not been entirely shut down. Global refiners can still procure crude oil from other Gulf countries such as the UAE and Iraq. Market analysts believe that the global supply of tradable crude oil has not experienced an irreversible contraction, thereby further limiting the room for bullish speculation.
III. Supply and Demand Fundamentals: The long-term tight balance remains unchanged, and U.S. drilling data provide early signals of future supply.
(1) The underlying global inventory tightness remains unchanged, and medium- to long-term supply resilience is insufficient.
This round of correction is driven by sentiment, not by an improvement in inventory or spot supply and demand. The overall crude oil inventory and strategic petroleum reserve in the United States are at their lowest levels in decades, and global commercial crude oil inventories are generally insufficient, lacking large-scale inventories to hedge against sudden disruptions in the Middle East. As long as the friction between the US and Iran continues, the low inventory levels will continue to amplify the volatility of oil prices, which is also the underlying support for investment banks to maintain a bullish outlook in the medium to long term.
(2) U.S. oil and gas drilling rigs fall for the first time in six weeks, signaling a slowdown in the momentum for increased U.S. crude oil production in the longer term.
According to Baker Hughes data, as of the week ending July 24, the total number of active oil and gas drilling rigs in the United States fell by one to 587, marking the first decline in six weeks. The number of drilling rigs serves as a leading indicator of North American shale oil production, with a lag of three to six months before actual output is realized. This slight drop in rig counts suggests that upstream companies are uncertain about the stability of future oil prices and are proactively curtailing drilling expenditures. As a result, the pace of U.S. onshore crude oil production growth will likely slow down in the near term, making it difficult to quickly ramp up production and offset geopolitical disruptions in the Middle East.
Outlook: Short-term sentiment correction does not change the upside risk, and the duration of the conflict will determine the ceiling for oil prices.
Several institutions have not changed their previous bullish outlook due to the single-day decline, and they still believe that the duration of the geopolitical deadlock is the core variable determining the central oil price. Crude oil analysts believe that the market needs to further track the progress of U.S.-Iran diplomatic efforts: whether a written ceasefire agreement is issued, and whether both sides suspend all strikes; in addition, it is necessary to monitor the strait shipping data: the number of oil tankers passing through the Strait of Hormuz and the Bab-el-Mandeb, as well as the crude oil loading volume at Saudi Arabia's Yanbu port, to assess the actual strength of logistical constraints; if there is no substantial easing, oil prices will remain in an environment where increases are more likely than decreases.
Overall, before the contradictions between the US and Iran are substantially resolved, the room for oil price decreases is limited, and any geopolitical friction can easily trigger a new round of increases. The duration and intensity of the conflict will determine the extent of future oil price increases.
