Oil prices rose on recovering supply and expectations of increased demand
Oil prices are hovering near pre-Iran war levels. Oil prices edged higher on Tuesday as investors focused on increased supply and demand expectations following a decrease in geopolitical tensions in the Middle East.
Brent crude futures rose 85 cents, or 1.2%, to $72.84 a barrel, while WTI crude rose 74 cents, or 1.1%, to $69.29 a barrel. This follows Monday's near-pre-Iran war levels.
Steps toward a recovery in supply eased the immediate risk premium, but the market is not entirely confident in the stability of the current ceasefire, given the volatile nature of US-Iran relations.
The response from demand, particularly from China, is crucial. The market has priced in much of the positive supply news, so the next rise in oil prices will depend on whether physical reality aligns with optimistic headlines.
On Monday, following the funeral of former Supreme Leader Ayatollah Ali Khamenei, Trump reiterated his threat of military intervention, saying the U.S. would either reach an agreement with Iran or "finish the job," in response to defiance from Tehran.
Investors are closely watching talks between the U.S. and Iran regarding the fate of ships passing through the Strait of Hormuz, as they track a recovery in Gulf oil exports.
On Monday night, the Iranian Revolutionary Guard fired at least two missiles at commercial ships passing through the Strait of Hormuz.
While the interim U.S.-Iran deal has reduced geopolitical risks, shipping companies remain cautious, limiting the pace at which crude oil exports return to normal levels.
On Tuesday, Japanese-owned supertankers carrying Saudi Arabian crude oil were heading towards the Strait of Hormuz to exit the Gulf.
Despite the recent increase in the strait, the recovery in oil flow is slower than expected. The initial recovery in tanker traffic has stalled, with ship movements remaining in single digits and showing no signs of a sustainable recovery.
The UAE increased its June crude oil production to near-record levels after leaving OPEC+. According to estimates, the United Arab Emirates increased its crude oil production by over 3.8 million barrels per day in June, the highest level since April 2020 and above pre-Iran war levels, after withdrawing from OPEC+ production quotas in May.
The Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia, agreed on Sunday to increase their production targets by a further 188,000 barrels per day starting in August, in addition to similar increases for June and July.
Saudi Arabia lowered its official August selling price (OSP) for Arab Light crude oil to Asia to $1.50 below the Oman/Dubai average. This represents an $11 discount compared to the previous month and the biggest drop seen in over two decades.
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