Oil's Softening Trend Continues
In a report sent to Rigzone late Tuesday by the Standard Chartered team, Standard Chartered Bank Energy Research Head Emily Ashford noted that oil’s “softening trend” had continued “as the return of easy barrels outpaces demand recovery”.
Ashford outlined in this report that the trend had carried on for a further week and pointed out that this move was projected by the company’s machine learning model SCORPIO.
“Brent blend for August delivery settled at $73.15 per barrel on 29 June; a week on week fall of $4.75 per barrel (-6.1 percent),” Ashford highlighted in the report.
“Prompt prices are now c.$50 per barrel down from the late April highs. Although prices are still moving on headlines and the escalations or de-escalations in the U.S.-Iran conflict, moves are quickly faded,” Ashford added.
Ashford said in the report that both Brent and WTI “appear oversold on a Relative Strength Index (RSI) basis, with Brent at 28.89 and WTI at 29.99”.
The Energy Research Head went on to state in the report that the most notable adjustment week on week had been in the forward curve.
“Front month time spreads have moved into contango, from steep backwardation a month ago, and the entire curve has flattened, with most of 2028-32 just under $70 per barrel,” Ashford pointed out.
“Conversely, the very back of the curve is c.$1 per barrel higher,” Ashford added.
In the report, Ashford said the market is “pricing in the expectation of brief excess during the 60-day negotiation window, as laden tankers move and storage tanks at ports become the next source of supply”.
“As we had expected, the return of UAE and Saudi barrels have been the highest profile. This easy supply comes at a time when demand signals remain weak, notably from China,” Ashford noted.
The Standard Chartered Bank representative said China’s demand return is the largest medium-term macro driver, adding that the timing of the country’s return to the market, and the pivot for its refiners from inventory drawdowns to tendering for physical cargoes, “will be critical for determining the price trajectory in H2”.
“If price is the key determinant for this decision, then Beijing could look to capitalize soon, before other global demand indicators tick higher and a more pragmatic view of returning shut-in Gulf supply prevails in the coming weeks,” Ashford said.
“The question then becomes where does incremental supply come from once the easiest barrels have returned,” Ashford added.
Ashford highlighted in the report that a 60-day waiver on all existing sanctions on the production, delivery, and sale of Iranian crude was issued by the U.S. Treasury on 22 June and pointed out that this was valid until 21 August.
“The waiver allows payments directly to Iran, in USD,” Ashford noted.
“The main purchasers of Iranian crude have been China’s teapot refiners, albeit at a discounted rate. This waiver may encourage more refiners to make near-term purchases of Iranian crude, boosting demand,” Ashford added.
“At present, there is no clear evidence of fresh spot tenders for Middle Eastern grades over the past week. This would also be reflected in stronger Dubai or Oman physical crude premiums and would likely be apparent before import statistics or refinery run data improve,” Ashford continued.
“While inventory restocking will be important, other factors will weigh on China’s demand growth. Longer-term, we expect China’s growth mix to continue its trend towards becoming increasingly electrified, automated and technology-led, which will be much less oil-intensive than previous cycles,” Ashford went on to state.
Also in the report, the Standard Chartered Bank Energy Research Head noted that global inventory restocking is an underappreciated medium-term bullish story.
“As with the timing of China’s demand return, the timing of a phase of global inventory restocking will be critical to determine the price trajectory,” Ashford projected, noting that most inventories remain in a withdrawal state.
“Not every barrel in storage is available to the market; a minimum operational level of inventory is required in pipelines, refineries, export terminals and blending facilities to ensure the physical system functions,” Ashford pointed out.
“This means that as stocks fall towards the operational minimal levels, the market loses flexibility and each barrel has a disproportionately larger price impact. Therefore, the pivot point between running down inventories and rebuilding them may approach more rapidly than draw-down calculations suggest,” Ashford said.
Ashford went on to state that, “as market conditions stabilize, and even if underlying consumption growth remains modest, the need to replenish these depleted inventories (let alone create new strategic reserves) will compete with normal BAU [business as usual] demand”.
“This will likely mean tighter balances in H2,” Ashford forecast.
In a report sent to Rigzone by the JPM Commodities Research team on Tuesday, analysts at J.P. Morgan said the estimated value of open interest in energy markets decreased by five percent, or $36 billion, week on week to $722 billion.
“This was primarily driven by a continued decline in prices across the broad energy complex after the U.S. and Iran signed a memorandum of understanding to end hostilities,” the analysts said in that report.
“We note that OECD commercial inventories draws - the most price-sensitive variable in our framework - have come in below expectations, while demand losses have been larger than expected, implying materially less upward pressure on oil prices than in our original forecast,” they added.
“We are therefore lowering our price outlook for 2H26 and 2027 and forecast Brent averaging $86 in 3Q26 and $80 in 4Q26, exiting 2026 at $78, and averaging $64 in 2027,” they continued.
“Even so, our revised path remains materially above the forward curve in 2026 and below the curve in 2027,” the analysts said.
To contact the author, email andreas.exarheas@rigzone.com
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