On Wednesday, July 8, the crude oil market re-entered a pricing window dominated by geopolitical risks. Brent crude rose to around $79.21 per barrel at one point during the session, while West Texas Intermediate crude rose to $75.30 per barrel; the market is re-incorporating Straits shipping risks into near-month contracts.

The trigger for this round of price increases was not simply inventory fluctuations, but rather the rapid reassessment of ceasefire expectations. At a press conference in Ankara, Trump stated that the temporary ceasefire had ended, while indicating that negotiators could continue contact, but he considered such communication "a waste of time." This statement disrupted the trading logic previously based on the resumption of transportation, the return of supply, and a price decline. The oil market's biggest fear is not the event itself, but rather a change in the probability distribution of the event. In the past few weeks, the market traded on the normalization of supply following the de-escalation of the conflict; currently, it is trading on the simultaneous uncertainty surrounding sea routes, insurance rates, shipping schedules, and arrival times.

More importantly, after the sharp decline in crude oil prices in the second quarter, the market positioning structure has clearly shifted towards a low-price narrative. The latest available positioning data shows that as of June 30, the open interest in Brent crude oil contracts was 264,200 lots, with managed funds holding 11,200 long positions and 4,700 short positions. While not extremely crowded overall, the high size of short positions in other reporting categories indicates that the market still has strong momentum for the downward trend. At this time, news shocks are likely to amplify near-month volatility because risk premiums do not recover linearly but are rapidly transmitted through the term structure and margin pressures.

The Strait of Hormuz carries significant weight in pricing because it connects physical oil and gas flows, not merely financial expectations. Public energy statistics show that in 2024, approximately 20 million barrels of oil flowed through the strait per day, equivalent to about 20% of global liquid oil consumption; by 2025, about 80% of the oil and petroleum products transported via this channel were destined for Asian markets. This means that a decline in navigation efficiency would impact not only crude oil prices but also freight rates, insurance, port delays, refinery procurement substitutions, and regional price differentials.

Latest shipping information shows that at least four oil and gas tankers turned back while attempting to pass through the Strait of Hormuz, raising the regional merchant shipping threat level to severe. For traders, the importance of this information lies in its direct impact on shipowner behavior. Even if the passage is not completely closed, as long as shipowners, insurers, and cargo owners repric the risks associated with passage, actual available capacity will decrease, and shipping times will lengthen. For near-month crude oil, this equates to a decrease in the liquidity of short-term deliverable resources.

The latest Short-Term Energy Outlook, released on July 7, just lowered its oil price forecast, estimating that Brent crude will average around $74 per barrel in the third quarter, down from the June average of $85 per barrel and significantly lower than the estimated level following the April high. The outlook also projects a global inventory decline of approximately 2.2 million barrels per day in the third quarter, easing the previously tighter situation, and predicts that the market may return to a more relaxed supply pattern by 2027.

The problem is that this outlook is based on production recovery, the rebuilding of trade flows, and the gradual normalization of shipping routes. If cross-strait shipping experiences further setbacks, the market will first revise its assessment of near-term supply availability, rather than immediately overturning its judgment of easing in the long term. Therefore, a more accurate explanation for the current market situation is that while long-term supply and demand may not be tightening across the board, the near-month risk premium has risen significantly. If the term structure shifts from a discount or flat position to a stronger cash premium, it indicates that the market is paying a premium for "ready-to-use barrels," rather than an optimistic assessment of demand for the entire year.

A June report by the International Energy Agency projected that global oil demand would decrease by 1.1 million barrels per day year-on-year in 2026, while global supply would decline by 3.9 million barrels per day to 102.4 million barrels per day. This data suggests that demand is not strong, and the price increase is more driven by supply chain fragility than by a broad expansion in end-consumer demand.

The current challenge in the crude oil market lies in the coexistence of weak macroeconomic demand and escalating geopolitical risks. Typically, weak demand suppresses prices in longer-term contracts, while inventory recovery lowers risk premiums; however, when key transportation routes are disrupted, near-month contracts prioritize reflecting the uncertainty of deliverable resources. In other words, rising oil prices do not necessarily indicate improved demand, but may simply be a repricing of risk.

For the refining chain, this will create a more complex profit structure. If crude oil prices rise due to risk events, while refined product inventories remain low, the crack spread may maintain high elasticity; however, if a rapid rise in crude oil prices compresses end-user consumption, subsequent refinery operating rates and procurement pace will, in turn, limit the sustainability of crude oil price increases. Therefore, the current market situation is not a single trend issue, but rather a rebalancing of risk premiums, physical logistics, inventory cycles, and macroeconomic demand.