By Giulia Petroni


Here's a look at what happened in oil markets in the week of June 8-12 and what the focus will be in the days to come.


OVERVIEW: Oil prices are headed for a weekly loss of 6% on Friday after President Trump called off strikes on Iran, raising hopes for a peace deal. Brent crude, the international oil benchmark, was around $89 a barrel, while West Texas Intermediate futures were trading around $86 a barrel.


MACRO: U.S. consumer inflation remains well above the Federal Reserve's target and has moved higher this spring, dashing hopes for rate cuts later this year. Markets have increased their expectations of hikes later this year in response to recent robust labor market reports, resilient U.S. economic activity data and the energy price shock stemming from the Middle East conflict.


GEOPOLITICAL RISKS: Markets found support after President Trump signaled a potential diplomatic breakthrough with Iran, calling off planned military strikes and suggesting that a peace agreement could be reached within days.

The latest shift in tone follows a week of heightened tensions. On Thursday, Trump had threatened a new wave of strikes on Iran, saying the U.S. "in the not too distant future" would be taking Kharg Island, Tehran's main oil export hub. Meanwhile, negotiations aimed at reopening the Strait of Hormuz and bringing an end to the conflict have remained deadlocked.

While financial markets have welcomed signs of de-escalation, analysts caution that optimism may prove premature unless tangible progress is made toward restoring shipping through the Strait of Hormuz. News flow surrounding the conflict has been exceptionally volatile, with alternating waves of optimism and skepticism over prospects for an agreement. "It's not the first time we've been in this position," analysts at ING said. "Trump has said many times before that a deal is very close, only for hostilities to resume."


SUPPLY AND DEMAND: A mix of factors--including the release of emergency oil reserves, softer global demand, lower crude imports from China, stronger U.S. exports and pipeline rerouting from Saudi Arabia and the U.A.E.--has helped mitigate the supply shortfall from the near-closure of Hormuz.

Crude prices have fallen toward a support level that though should remain intact as long as the Strait continues to face meaningful disruptions. For now, the oil market is being cushioned by a series of factors, including emergency crude releases and temporarily weaker refinery demand.

According to Vikas Dwivedi, energy strategist at Macquarie Group, as seasonal refinery maintenance concludes and refining margins remain attractive, refinery utilization rates are expected to increase, boosting crude processing and fuel production. This should help alleviate some of the broader fuel supply tightness. However, because refiners are increasingly maximizing output of diesel and jet fuel, gasoline inventories might remain relatively constrained, particularly during the peak summer driving season.

Meanwhile, U.S. oil inventories continue to fall at an alarming rate. The Energy Information Administration reported crude stocks fell by 7.2 million barrels last week. The agency also cut its forecast for global oil demand this year and now expects a decline of 1.1 million barrels per day.


WHAT'S AHEAD: Next week, the IEA will release updated estimates for global oil supply and demand. Market participants will be particularly focused on inventory trends, especially after the agency reported record inventory drawdowns in March and April. Attention will also center on the IEA's forward-looking projections. While the agency's customary five-year outlook has been postponed, it will, for the first time, provide forecasts extending to 2027.

"This involves making many assumptions: How long will the conflict last? How quickly can production be ramped up? How quickly will inventories be replenished?" analysts at Commerzbank said. "We expect that, as in previous weeks, the IEA will caution against underestimating the tension in the oil market."

China's May production data will be of interest next week. The significant decline in crude oil imports suggests that refinery processing has also been noticeably curtailed, though likely not to the same extent, according to analysts.

Markets will also be closely focused on the Federal Open Market Committee (FOMC) event on Wednesday in the first meeting led by Chair Kevin Warsh. The central bank is expected to hold rates steady on Wednesday, but traders will pay close attention to any clues on future policy. U.S. financial markets will be closed on Friday in observance of the Juneteenth holiday.


Write to Giulia Petroni at giulia.petroni@wsj.com


(END) Dow Jones Newswires

06-12-26 1113ET