The Commodities Feed: Oil Falls Further

Oil prices continued to decline on growing expectations that the Strait of Hormuz could reopen. Meanwhile, the US Strategic Petroleum Reserve remains at multi-decade lows following sustained drawdowns.

Energy – Oil declines on Hormuz reopening expectations

Oil prices fell for a fourth consecutive session, with NYMEX WTI dropping to its lowest level since March on expectations of a full reopening of the Strait of Hormuz and a possible deal later this week. ICE Brent was trading below $83/bbl on Tuesday morning, leaving prices more than 30% below their peak during the height of the conflict.

China refinery throughput fell 9.1% year-on-year to 53.7mt in May, the lowest level since 2022. Year-to-date activity declined 2.2% over the first five months. The drop reflects weaker crude imports – at an eight-year low – due to disruptions from the Persian Gulf. State-owned refiners operated at an average run rate of 66.3%, the lowest since late 2021.

US Energy Department data shows the Strategic Petroleum Reserve has declined to around 340m barrels, the lowest level since 1983, following continued drawdowns as part of a 172m barrel release to ease fuel prices during the Iran conflict. With supply risks easing after the US-Iran agreement, withdrawals could slow, with a shift towards rebuilding stocks.

US natural gas prices rose for a second consecutive session, with front-month Henry Hub settling above $3.1/MMBtu. Gains were driven by stronger flows to LNG export terminals as facilities ramped up after maintenance, tightening domestic supply. However, forecasts of cooler weather limited upside by weighing on power demand.

Metals - Aluminium prices fall on easing supply concerns

LME aluminium fell more than 4.4% day-on-day to around $3,380/t, its lowest level since late March, on expectations that the US-Iran interim agreement could allow shipments through the Strait of Hormuz to resume. While broad terms have been agreed, final details are still under negotiation, with reopening expected once a deal is signed on Friday. Even as disruptions ease, the recovery of production is likely to be gradual, with smelters needing time to secure inputs, stabilise power supply and restart operations.

Middle Eastern output – around 10% of global supply – fell 35% YoY in April, although higher production in China may partly offset losses. Additional downside risks include a potential release of regional inventories once the Strait reopens, as well as rising output from Indonesian smelters.

NBS data shows China’s primary aluminium output rose 1.7% YoY to 3.9mt in May, supported by strong margins that encouraged higher smelter utilisation and partly offset Middle East disruptions. Cumulative output increased 3.5% YoY to around 19.2mt over January – May. While production ramped up to support exports after the conflict began, further growth has been constrained by government capacity caps. In other metals, crude steel output declined 2.7% YoY to 84.4mt in May, largely due to maintenance at major mills. Year-to-date production fell 3.9% YoY to 415.5mt over the first five months.