Morning Highlights: Oil rebounds but heads for steepest weekly loss in over a year

Oil prices rose modestly early Friday but remained on course for their sharpest weekly decline since March 2023, as the absence of meaningful supply disruptions from the Israel-Iran conflict erased much of the risk premium that drove prices higher earlier this month.

Market snapshot (as of 6:25 a.m. EST):

• Brent (Aug): $68.20 (+$0.47)

• WTI (Aug): $65.70 (+$0.46)

Both contracts are set for weekly losses of around 12%, a dramatic reversal after Brent briefly topped $80 earlier in June when Israel struck Iranian nuclear facilities.

"The market has almost entirely shrugged off the geopolitical risk premiums from almost a week ago as we return to a fundamentals-driven market," said Janiv Shah, analyst at Rystad Energy.

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Ceasefire puts fundamentals back in focus

With the Israel-Iran ceasefire holding, attention has shifted squarely back to supply-demand balances and macroeconomic factors. Goldman Sachs said the risk of Middle East crude supply disruption has dropped to just 4%, down sharply from highs during the 12-day conflict.

Options markets now imply a 60% chance Brent averages $60–$70 over the next three months, with just a 28% probability of sustained moves above $70, Goldman noted.

Demand support from inventory draws

Despite the geopolitical unwind, oil prices found some support this week in strong inventory draws across key refined products.

• U.S. EIA data showed crude stocks fell by 5.8 million barrels last week, while gasoline inventories dropped by 2.1 million barrels amid the peak U.S. driving season.

• ARA (Amsterdam-Rotterdam-Antwerp) gasoil stocks fell to their lowest in over a year.

• Singapore’s middle distillates inventories also declined as exports rose.

"These data confirm that middle distillate demand remains resilient and that refiners are seeing healthy margins," said Tamas Varga of PVM Oil Associates.

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OPEC+ decision looms

The focus is also turning to OPEC+, which meets July 6 to decide on August production levels. Rosneft chief Igor Sechin suggested earlier that the group could accelerate the pace of its output increases, while ING analysts expect another 411,000 bpd boost next month.

"These supply hikes should ensure that the oil market moves into a large surplus towards the end of the year," ING’s Warren Patterson and Ewa Manthey wrote, cautioning that any renewed Middle East escalation could quickly reverse that trajectory.

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China’s record Iranian imports

Adding to supply-side dynamics, China’s Iranian crude imports surged to a record in June.

• From June 1–20, Chinese refiners took in 1.8 million bpd of Iranian oil, according to Vortexa.

• That compares with an average of 1.38 million bpd earlier this year and highlights Chinese teapots’ appetite for discounted barrels.

"While these imports were front-loaded before the war, it demonstrates that Iran remains a key marginal supplier into Asia," said an analyst with Kpler.

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Macro backdrop: tariffs, rates, and a weaker dollar

Markets are also watching tariff negotiations and the trajectory of U.S. monetary policy.

• The U.S. is expected to finalize trade agreements with 10 countries after securing a deal with China, potentially removing tariff headwinds for oil demand.

• A softer U.S. dollar this week, driven by speculation over President Trump’s Fed chair pick, could also help underpin prices by making oil cheaper for holders of other currencies.

ING noted:

"If the other ten deals are successful, the tariff threat will be removed from the oil market, which may provide a boost for demand and, consequently, prices."

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With Middle East risk premiums deflating, traders are refocusing on near-term balances and summer demand trends, while the OPEC+ July 6 meeting will be the next event risk for crude.