Disclaimer: This article is written by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own. Readers' discretion is advised.
Crude oil prices corrected by 10 per cent during the week, but remain up 15 per cent for July, marking the strongest monthly gain since April. The weekly pullback reflected a partial easing of geopolitical risk after reports that Pakistan’s Foreign Ministry was seeking to restore peace and stability through negotiations between the US and Iran.
Shipping activity through the Strait of Hormuz has also improved in recent days. The US said its navy escorted several tankers through the waterway, while fourteen commodity vessels transited the strait on Wednesday, up from single-digit levels last week.
Geopolitical risks remain elevated
Tensions remained high through the week as the US and Iran continued military actions against each other. US Central Command said American forces launched airstrikes against dozens of military targets in Iran on Thursday and early Friday, aimed at degrading Iran’s ability to threaten US troops. Iran retaliated by launching drones and missiles into Kuwait and Jordan. Iran has also rejected a proposed arrangement under which control of the Strait of Hormuz would be split equally between Iran and Oman. Tehran argued that such a structure would not address its security concerns, insisting that the inbound passage and part of the outbound channel must remain entirely under Iranian control.
China signals strong demand
China’s June crude oil imports disappointed the market, falling 41 per cent to a near-decade low of 29.27 million tons, or 7.2 mbpd. We expect stronger import numbers in the July series, particularly as lower official selling prices and restocking needs may support renewed buying interest. However, the recent blockade around Hormuz and the conflict zone in the Red Sea have kept roughly 7–8 mbpd of oil offline from global supplies. The market still appears to be underpricing the longer-term damage that the conflict has imposed on global reserves and supply security.
At the same time, abundant crude supplies in China could reduce near-term Chinese crude purchases, creating a bearish offset for prices. China’s crude inventories remain high, with stocks falling by only 54 million barrels since early May to around 1.2 billion barrels.
Additional supply disruptions
Supply from Russia’s CPC terminal was suspended again following reports of drone attacks on two oil tankers near the terminal. This adds another layer of disruption to an already fragile global supply picture.
Macro Backdrop: Demand outlook still fragile
The latest economic data from the US and China do not support a materially stronger crude oil demand outlook for H2 2026. This is one reason oil prices have remained mostly below $100/bbl despite the Hormuz blockade and ongoing military action. China’s contracted in July, snapping four straight months of expansion as the export rush that powered a second quarter rebound began to unwind, piling pressure on Beijing to boost domestic demand. The manufacturing production index and new orders index stood at 49.9 and 48.5, down 1.5 and 2.7 points MoM, By sector, general equipment and computer, communications and electronic-equipment industries recorded both production and new-orders indices above 53.0, signalling brisk activity and faster output-demand growth. Non-metallic mineral products, ferrous-metal smelting and rolling, and autos posted both indices below the 50 thresholds, reflecting weak supply-demand conditions.
China’s non-manufacturing business activity index fell to 49.0 in July, down 1.2 ppt month-on-month, indicating a pullback in non-manufacturing activity. The services business activity index declined to 49.3, down 1.1 per cent, showing softer market activity. The input price indices continued to decline. The purchase-price index for major raw materials was 53.2 and the factory-gate price index 47.8, both down for a fourth month amid recent commodity-price volatility. Price indices for non-ferrous metal smelting and rolling were both below 45.0. Large price swings weakened firms’ procurement intent, pulling the purchasing-volume index down to 49.4.
On the other hand US growth slowed to 1.5 per cent in Q2-Advancde GDP estimate dragged by decline in government spending but surprisingly the consumer spending stood higher at 3.2 per cent and Business investment remained strong, with outlays rising 8.4 per cent q/q.
US Weekly Crude Data: Tight inventories support prices
US energy producers and refiners remain key beneficiaries of the West Asian crisis. Refiners are operating at 97 per cent utilization, helping lift US crude and product exports to 11 million barrels last week. Beneath these strong operating numbers, however, inventories remain tight, supporting the case for crude prices to stay higher for longer.
- US crude inventories as of July 24 were 6.4 per cent below the seasonal five-year average.
- Gasoline inventories were 6.6 per cent below the seasonal five-year average.
- Distillate inventories were 8.5 per cent below the seasonal five-year average.
- SPR reserves stood at 307 million barrels, the lowest level since 1983.
At current replenishment needs, rebuilding the SPR would likely take more than two years.
Outlook: We hold bullish stance on crude oil with Brent expected to average around $80 if the war is not prolonged but if we see Hormuz disruption until mid-September Brent may average $90 by year end. WTI is expected to hold $75 and $80 in the similar scenario.
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