The Commodities Feed: Oil drops as hopes for Persian Gulf resolution grow

The oil market remains overly sensitive to Iran-related headlines, with participants continuing to pin considerable hope on reports that talks between the US and Iran are progressing. We’ve been in this situation multiple times before, which ultimately led to disappointment. Yet the market is still reactive, likely reflecting the significance of ongoing supply disruptions. The latest report suggests that the US is in the “final stages” with Iran, raising hopes for an end to the war and reopening of the Strait of Hormuz. As a result, ICE Brent settled more than 5.6% lower yesterday. The market appears to be giving more weight to these reports, with unusually heavy put option activity in Brent earlier this week, as Bloomberg identified.

Meanwhile, there appear to be additional crude oil tankers passing through the Strait of Hormuz. Ship tracking data showed at least two VLCCs navigated the strait on Wednesday, and possibly a third. This would equate to 6 million barrels. More recently, we’ve seen more oil making its way out of the Persian Gulf, but clearly, flows remain well below normal levels. Our base case sees Brent averaging $104/bbl this quarter. Then, we see oil trading into the $90s in the second half of the year, assuming that Strait of Hormuz oil flows amount to around 4m b/d by the end of May. We will need to see this trend of tankers passing through the Strait of Hormuz continue for our base case to hold. We may see more oil tankers leaving the Strait of Hormuz. But shipowners will be reluctant to return until the current hostilities in the region are resolved.

The EIA’s weekly inventory report yesterday showed that total US crude oil inventories (including SPR) fell by a record 17.78m barrels last week. This highlights tightening in the US market on the back of stronger oil exports, amid ongoing supply disruptions in the Middle East. Crude oil and refined product exports remained above 13m b/d over the week, well above the average 11.1m b/d exported between the start of the year and the start of the war in Iran. Commercial crude oil inventories fell by 7.86m barrels over the week, while the SPR saw 9.92m barrels of withdrawals. Meanwhile, gasoline inventories continue to fall as we head towards the summer driving season, declining 1.55m barrels. This leaves US gasoline inventories at their lowest seasonal levels since 2014, suggesting gasoline cracks remain well supported heading into the summer.

Data from the International Aluminium Institute (IAI) show that the average daily global primary aluminium output declined to 197.4kt in April. This compares with 201.7kt a month earlier. Total monthly production for the metal fell 5.3% month-on-month (-2% year-on-year) to 5.92mt last month, reflecting reduced output across major producing regions. However, cumulative production for January–April remained broadly stable at 24.2mt.

China’s aluminium production fell 3% month-on-month to 3.7mt in April, while year-to-date output stood at 14.7mt, up 1.6% year-on-year. Chinese smelters continue to benefit from alumina supply diversion away from the Middle East, which could support near-term production growth and mitigate regional supply disruptions linked to geopolitical tensions.

Aluminium production in Europe (including Russia) declined 3% MoM to 604kt, while Asia ex-China output fell 3.1% MoM to 408kt. Gulf region production dropped more sharply, down 29% MoM and 34.6% YoY to 330kt, its lowest level since November 2013. Year-to-date output in the region decreased 13% YoY to 1.8mt, primarily due to prolonged supply disruptions stemming from the Iran conflict.