Market Development

Brent and WTI declined 8% w/w to USD 94.05/bbl and USD 88.89/bbl, respectively, as geopolitical risk moderated following the US and Iran’s agreement to extend the ceasefire by 60 days and continue nuclear negotiations. The agreement came despite a further escalation in hostilities during the week, including US strikes on Iranian military infrastructure near the Strait of Hormuz and on vessels reportedly attempting to deploy mines, followed by Iranian retaliation against the US base involved in the operation.

 

Physical market tightness became increasingly visible through broadening inventory draws. Asian markets ex-China were the first to draw down crude stocks and strategic reserves in April, with the trend subsequently extending to North America, Europe, and Africa. In the US, diesel inventories fell to a 23-year low during the week, while crude exports declined by 1 mb/d, suggesting that the recent period of elevated outbound flows have begun to pressure domestic reserves. China, which had been building inventories since the onset of the US-Iran conflict, also shifted into draws of around 1 mb/d in May. Overall, global onshore crude inventories declined by 1.5 mb/d across April and May.

 

Atlantic Basin crude and product balances have become increasingly self-contained, with exports to markets outside the basin declining as opposed to the earlier phase of the conflict. US diesel exports and SPR releases of crude were primarily directed to Europe, while ample intraregional crude availability continued to support elevated refinery runs. The decrease in voyage distance has kept freight rates under pressure for both clean and dirty tankers loading in the basin, with LR rates converging toward MR levels even after the earlier shift of LR tonnage into dirty trades. The flow pattern signals a prioritization of regional supply security ahead of the peak summer driving and aviation season.