International oil prices continued to decline on Wednesday. The market has responded to the resumption of contacts between Iran and Oman, with the possible improvement in shipping conditions in the Strait of Hormuz and the subsequent fall in geohazard premiums. However, the actual traffic through the Straits has not been restored and the tension at the supply end of the spot has not been completely lifted.
Two crude oil benchmarks continue to fall.
As of August 26th, the Brent Oil Futures newspaper had fallen by about 2 per cent at US$ 86.80 a barrel, or US$ 1.78 a day, and WTI by US$ 80.87 a barrel, or US$ 1.49 a barrel, or 1.8 per cent. On the previous trading day, the two benchmarks had fallen by more than 3 per cent.
The Strait of Hormuz, which was responsible for the transportation of about one fifth of the world ' s crude oil and liquefied natural gas before the outbreak of the war, can rapidly influence the pricing of oil prices by any improved signal of navigation. The current market has reflected some of the optimistic expectations in advance, but real transport recovery remains limited.
According to Kpler preliminary data quoted by Reuters, on Tuesday only 5 bulk cargo ships passed through the Strait of Hormuz, below the average of 15 for the last 10 days, compared to 4 on Monday. This means that the fall in oil prices is more a reflection of expectations of de-escalation than of a return to normality.
Unincidentally increased pressure on United States stocks
In addition to geologic factors, United States supply data also put additional pressure on oil prices. Data from the American Petroleum Association (API) show that, as of the week of August 21, the United States crude oil stock had increased by about 4.2 million barrels, significantly above the 600,000 barrels expected by the Reuters analysts.
The market is waiting for the official inventory report to be released later by the United States Energy Information Agency (EIA). WTI may continue to be under pressure if official data also indicate a significant increase in crude oil stocks. If the data are significantly different from API, market judgements may also be rapidly adjusted because API data are a preliminary estimate for the industry.
Refinery high-load operation support requirements
Despite weak oil prices, the operational intensity of United States refineries has complicated fundamentals. It was reported that, against the backdrop of the disruption of the supply of finished oil in the Middle East and Russia, the rate of start-up of United States refineries had remained above 95 per cent for some time, higher than normal.
High start-up rates usually mean that refineries need more crude oil to support demand. However, if the facility is maintained at high loads for long periods of time, it will also increase the operational pressure. Overall, the current oil market, on the one hand, is lowering its geo-priority premium while, on the other hand, spot flows and refinery demand are not significantly weaker, and short-term fluctuations are likely to remain high.