International oil prices have fallen sharply from their highs due to expectations of easing geopolitical tensions, and market sentiment has cooled significantly in the short term.

The current decline in oil prices is mainly driven by short-term supply benefits from the large-scale release of US strategic petroleum reserves and a surge in crude oil exports. However, this buffer has significant limitations. As US commercial and strategic crude oil inventories continue to decline rapidly, coupled with the long-term shipping risks in the Middle East, the energy market harbors deep-seated supply and demand risks, and the medium- to long-term price volatility risks for crude oil and natural gas continue to rise.

As expectations for a de-escalation ease, international oil prices have seen a significant pullback from their highs.

Following the US's signals of de-escalation, the market generally anticipated a gradual return to normalcy in shipping across the Strait of Hormuz, triggering a concentrated sell-off in the oil market. Standard Chartered's commodities analysts stated that even with differing statements from the US and Iran and a continued hardline US stance, algorithmic selling still emerged, pushing oil prices down rapidly.

Short-term oil prices fluctuate entirely in line with the situation between the US and Iran, with geopolitical competition becoming the core factor driving market trends.

A surge in US crude oil exports is putting downward pressure on global oil prices in the short term.

Besides geopolitical sentiment, the sharp rise in US crude oil exports is a hidden core factor suppressing oil prices. Relying on the release of strategic petroleum reserves, US crude oil and refined product exports recently hit a record high of nearly 12.9 million barrels per day, and the four-week average ending May 15 also broke records, significantly increasing short-term supply pressure in the market.

The United States has become the main source of emergency crude oil supply globally, with daily crude oil exports peaking at 6.4 million barrels. Due to disruptions in navigation through the Strait of Hormuz, the Eurasian region is actively seeking alternative sources of Middle Eastern crude oil, continuously absorbing large quantities of US crude oil.

To alleviate the global energy shortage, the United States released 172 million barrels of its strategic petroleum reserves on loan, with the highest weekly release approaching 10 million barrels. Related data shows that nearly half of the reserve crude oil released in recent months was directly exported and not used for domestic refining. European and Asian buyers absorbed nearly half of the supply, effectively filling the global short-term supply gap and continuously suppressing significant oil price increases.

With inventories continuing to deplete, the U.S. energy security buffer is rapidly weakening.

Analysts warn that releasing reserves to suppress oil prices is only a short-term measure and cannot be sustained in the long term.

U.S. emergency reserves and commercial inventories are being depleted at an accelerated pace, with total strategic petroleum reserves falling to their lowest level since April 2024, at only about 365 million barrels. Domestic commercial crude oil inventories have declined for four consecutive weeks, with overall inventory levels below the five-year average. Gasoline inventories have fallen to a near six-month low, while distillate fuel inventories have tightened in tandem.

With the peak summer oil consumption season approaching, the US energy security buffer continues to shrink, and the market is beginning to anticipate that the US may introduce crude oil export restrictions to prioritize domestic supply and stabilize domestic oil prices.

The divergence between internal and external logics has led to a continued disconnect in the price movements of the two major crude oil varieties.

Analysts believe that even if shipping in the Strait of Hormuz fully resumes, the vulnerability of the crude oil market will persist for a long time, and Brent crude oil will be significantly more affected by risks.

Brent crude, as the global pricing benchmark, is highly dependent on Middle Eastern shipping routes. Geopolitical conflicts, shipping risks, and fluctuations in freight and insurance costs directly impact its price. West Texas Intermediate (WTI) crude, on the other hand, is anchored to supply and demand in the US inland region and is less directly affected by disruptions to shipping in the Persian Gulf. During the US-Iran negotiations, the two commodities diverged further: Brent crude focused on physical supply risks, while WTI was more influenced by expectations regarding US reserve releases and export controls.

The natural gas market is under pressure, but room for further price increases is gradually opening up.

The disruption to Middle Eastern natural gas supplies did not trigger significant market volatility. Increased LNG supply from the US and other regions in 2026 effectively offset the impact of supply disruptions in Qatar and the UAE. With the lifting of force majeure, natural gas prices have room to decline further.

In the short term, declining domestic production and increased liquefied natural gas (LNG) exports in the United States are driving gas prices higher. Analysts predict that, supported by data center electricity demand, temperature control needs, and export growth, US natural gas prices are likely to rise further by the end of the year.

Summarize

Overall, the current low prices in the energy market are a short-term result of the US overdrawing its strategic reserves, not a genuine improvement in the supply and demand balance. Given the recurring geopolitical risks, persistently low inventories, and approaching peak demand season, the medium- to long-term supply-demand gap in the crude oil market remains, and the risk of a price rebound remains high. Meanwhile, the natural gas market is steadily strengthening, and the overall volatility of the energy market may further increase in the future.