Oil Corrects, Risk Premium Shrinks But Remains Fragile
Oil prices weakened on Friday (June 5th) as the market began to assess the extent of demand destruction amid high energy prices, while US-Iran peace talks have yet to produce tangible progress toward reopening the Strait of Hormuz. WTI fell 2.7% to close at US$90.54/barrel, while Brent fell 2% to US$93.09/barrel.
Sentiment was also affected by declining risk appetite, as evidenced by continued declines in open interest across both benchmarks, making price movements more susceptible to widening when geopolitical headlines emerge. Trump said talks with Iran were progressing well, even though Hezbollah rejected a US-brokered ceasefire in Lebanon. Lebanese President Joseph Aoun even accused Iran of using Lebanon as a "bargaining chip" in negotiations with Washington.
On the fundamental side, the market is beginning to see signs of weakening demand. China's crude oil imports reportedly fell in May to their lowest level in a decade, as the world's largest buyer scaled back refinery operations and curbed exports to cushion the impact of the Iran war. Energy forecasters are also starting to point to a rare year: declining global demand growth.
WTI is now down about a fifth since early April, when the US and Iran agreed to a ceasefire, while hedge funds increased their net-short Brent position to its highest level since January (through the week ending June 2). There was a rally this week as renewed clashes eroded hopes for a deal, but prices have since fallen again as Trump's tone became more optimistic and the market assessed that a recovery in physical flows remains elusive.
The main hurdles remain: the status of Hormuz and the Lebanon conflict. Trump said the strait would be opened "soon" if Iran signs a Memorandum of Understanding (MoU) on cessation of hostilities, but Iran demands a ceasefire in Lebanon as a precondition. Meanwhile, logistics operations in the region remain fragile, as evidenced by the temporary disruption at Oman's main export terminal, Mina Al Fahal, due to an explosion—although operations later returned to normal. (Arl)*
Source: Newsmaker.id
