1. Market Review

On August 3rd (Monday), international crude oil experienced a sharp decline, with the US WTI crude oil futures for September falling by $4.33, a decrease of 5.11%, and settling at $80.34 per barrel; The October Brent crude oil futures contract fell $4.16, or 4.73%, to settle at $83.77 per barrel, hitting its lowest closing price since July 13th. Finished oil products fell synchronously, with RBOB gasoline and heating oil futures falling 4.74% and 5.33% respectively in September.

2. Downward driving factor: Expectations of US Iran negotiations suppress oil prices

The direct reason for the current drop in oil prices comes from US President Trump's announcement of a slowdown and signal: the US has temporarily suspended launching a new round of strikes against Iran, hoping to reach a quick agreement. The market expects that shipping restrictions in the Strait of Hormuz may be lifted, and the risk of crude oil supply disruptions will decrease. But the market quickly fell into a game of serious information contradictions between the two parties:

Trump publicly declared that the US Iran negotiations have resumed, while putting pressure on Iran to reach an agreement or face complete surrender; The Iranian Ministry of Foreign Affairs has explicitly denied any plans to negotiate with the United States in the near future and has no delegation arrangements; Iran's senior officials have strongly stated that they will never allow the United States to open an independent air route in the Strait of Hormuz.

The optimistic expectation of "conflict cooling and negotiation landing" at the forefront of the market has driven the rapid decline of oil prices. At one point, the oil market plummeted by 7%, but market participants believe that this sell-off is an emotional overreaction of the market to Trump's remarks. Looking back at the recent market situation, it is not difficult to find that Trump's remarks have repeatedly switched, sometimes releasing threats to strike and sometimes releasing negotiation signals, continuously exacerbating short-term fluctuations in the crude oil market.

In addition, Trump publicly accused oil companies such as ExxonMobil and Chevron of making excessive profits, called on the industry to lower gasoline prices, and to some extent suppressed market optimism about rising oil prices. During the later trading period, oil prices regained some lost ground.

3. Fundamentals: Positive factors supporting oil prices still exist, and risks have not completely dissipated

Although the short-term sentiment has cooled down, the hidden dangers of the two major energy routes in the Middle East continue to persist, making it difficult to completely eliminate geopolitical premiums: the risks of shipping in the Red Sea persist; the Houthi armed forces continue to threaten Saudi shipping, forcing multiple Saudi super large oil tankers to divert around southern Africa; Although a small number of Saudi oil tankers still pass through the Mandeb Strait, shipping uncertainty persists. The passage efficiency of the Strait of Hormuz is relatively low, and due to the impact of the US Iran confrontation, the speed of ship passage in the strait continues to slow down, making it difficult to recover to the normal level before the conflict in the short term.

There is potential support in the fundamentals: On Monday, August 3rd, market research showed that as of the week ending July 31st, US crude oil, gasoline, and distillate inventories are likely to decline simultaneously, and refinery operating rates have slightly fallen. Specifically, the four interviewed analysts estimated on average that as of the week ending July 31, US crude oil inventories had decreased by approximately 2 million barrels. Gasoline inventory is expected to decrease by approximately 1.2 million barrels; The inventory of distillate oil, including diesel and heating oil, has decreased by 100,000 barrels. On Wednesday evening Beijing time, EIA will release official inventory data, and inventory depletion may provide bottom support for oil prices.

4. Future prospects

The crude oil analyst from SunSirs believes that the core variables in the later stage will focus on the subsequent implementation of the US Iran public opinion game, and the market needs to distinguish between verbal statements and substantive diplomatic contacts. If the two sides continue to confront each other without substantive negotiations, there is room for repair for the geopolitical premium that has subsided in the early stage; Once there is a resurgence of military friction, oil prices will quickly rebound. In addition, it is necessary to pay attention to real-time shipping data and changes in channel traffic volume in the Strait of Hormuz and the Strait of Mandeb, which are the most intuitive indicators for assessing supply risks.

Overall, in the short term, the market trading logic has shifted from "conflict escalation" to "situation easing", with a rapid retreat of geopolitical premiums and fluctuating oil prices under pressure. But we need to be cautious: the current differences in demands between the United States and Iran are huge, and it is difficult to reach a comprehensive agreement. The geopolitical situation in the Middle East belongs to a phase of easing rather than the end of the crisis. It is expected that the market will enter a high volatility and oscillation pattern, and it is difficult to form a unilateral trend.

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