The Sino-US trade war has been going on for 100 days. Why hasn't oil prices skyrocketed? Will they continue to rise in the future?

The Strait of Hormuz has been blocked for over three months, cutting off more than 10 million barrels per day of Middle Eastern oil supply, resulting in the most severe oil supply shock in modern history. However, Brent crude has fallen from its record high of over $140 during the initial phase of the Iran War to below $100, and the industry's pessimistic predictions of $200 have not materialized. "People thought the situation would be much worse," said US President Trump on Friday. "Today I see $96 a barrel, people thought it would go to $300." The Iran War has been going on for nearly a hundred days. On the 5th, President Trump declared that Iran's military forces had been "completely destroyed." But on the 6th, the US military again launched airstrikes on certain areas of Iran, prompting Iran to retaliate by launching missile attacks on US military bases in Kuwait and the Fifth Fleet facility in Bahrain. Amidst fighting and talks, a series of emergency measures are allowing the global oil market to digest this supply shock with greater resilience than expected. Maria Angelicoussis, CEO of the world's largest Greek shipowner Angelicoussis Group, said: "The conflict has been going on for more than three months, and the world is showing unexpected resilience. Commodities prices have risen by 50% to 60%, and Asian LNG prices have risen by 90%, but they have not reached the sky-high levels that I personally expected." Three forces are keeping oil prices down From the demand side, as the world's largest crude oil importer, China's crude oil imports in May dropped by nearly 40% compared to the previous year (Vortexa data), a decrease sufficient to offset one-third to one-fifth of the supply lost due to the war. The reasons behind this include: China's halt in recent years of continuous growth in strategic oil reserve additions, the substitution of some petrochemical production capacity by coal chemical industry, and the booming sales of electric vehicles suppressing gasoline consumption. According to estimates from Kpler and Energy Aspects, refinery processing volumes in China in May-June dropped to around 13 million barrels per day - the last time this operating level was seen was in early 2020, while the previous year's average was 14.8 million barrels per day. Warren Patterson, head of commodity strategy at Dutch financial services company ING, commented that "China's significant withdrawal from the oil market has played a crucial role in rebalancing the global market and helping to suppress oil prices." While demand is shrinking, the supply side is also showing unexpected resilience - mainly from the United States. Thanks to the shale oil revolution that began over a decade ago, the US is now a net exporter of crude oil and refined products, and its abundant domestic energy supply is what gave President Trump the confidence to wage war on Iran. Since the end of February, the US has played an even more important role as a key flexible supplier in the global market, with US crude and fuel exports in May exceeding last year's average by more than 200,000 barrels per day. The Trump administration promised to release 172 million barrels from the Strategic Petroleum Reserve (SPR), and the execution speed exceeded expectations - in a week last month, the SPR released volume reached 1.4 million barrels per day, with nearly half going to Europe and other overseas destinations. Washington also played another card: exempting some Russian oil sanctions, making it easier for India to increase purchases. In May, Russia's average exports to India, the world's third-largest crude oil importer, reached 1.76 million barrels per day, a 63% increase from February. Alternative export routes provide additional buffers. Saudi Arabia transports oil to the Red Sea via the East-West Pipeline, and the United Arab Emirates sends oil to the port of Fujairah outside the Persian Gulf via pipelines. Governments coordinated historic joint releases of strategic reserves, which also absorbed some of the pre-war market oversupply. Although the number of merchant ships passing through the strait has dropped from a daily average of nearly 100 before the conflict to 2-3, a small number of ships still pass through through government-to-government trades or increasingly covert means. According to an official familiar with US Central Command operations, nearly 1,000 merchant ships have still passed through the strait in the past two months. Buffers are running out These emergency measures have stabilized oil prices, but they are being consumed themselves. Global oil inventories are falling at a record pace. Greg Sharenow, head of investments in commodities for The Pacific Investment Management Company (Pimco), which manages nearly $24 billion in assets, issued a blunt warning: "Every week, the system tightens by 70 to 80 million barrels. This cannot continue indefinitely. In the coming months - broadly speaking - you will face a system that may lose resilience, as buffers have been severely depleted." The United States is also facing tightness. Last week, total US oil inventories dropped to their lowest level in over 20 years, with critical storage hub Cushing approaching its operational limit, strategic reserves running low, and fuel storage facilities facing critical lows as the summer peak oil demand approaches. Domestic refineries are operating at overload to meet demand, competing for oil sources for export, causing US crude to have a premium over Middle Eastern oil in Asia. "We cannot sustain these levels of exports," Sharenow said. Will the follow-up fly? President Trump's continuous talk of negotiations has to some extent suppressed oil prices. Brent crude futures have dropped to their lowest level since August of last year, and the market's intense volatility has forced traders to reduce risk exposure, with the price crash triggered by peace expectations pushing many long positions out of the market - only daring to take small positions and operate on short cycles. But the prospects for negotiations are uncertain. Analysts at Raymond James point out that the "minimum threshold" for the resumption of strait navigation is the passage of at least 20 ships on average per day for a week - "this is not achievable before a lasting US-Iranian reconciliation, and the time for reconciliation keeps getting pushed back." An article in Time magazine pointed out an awkward reality: even if negotiations succeed, the best outcome is simply reopening the strait that used to be clear before the war, plus a nuclear agreement that is no more comprehensive than the 2015 Iran nuclear deal - after a hundred days of fighting, the best outcome is to return to square one. Most traders see when China will return to its pre-war level of crude oil purchases as a key variable in oil price trends. But even if the above issues are resolved, the market faces an unavoidable gap. Tom Baker, head of Bahrain operations at Vitol, the world's largest independent oil trader, said at a conference this week: "Essentially everyone is expecting the solution to be just around the corner. But no matter how quickly production capacity is restored, you still face a gap - call it what you will - 1 billion barrels of oil have disappeared." Global spare supply is rapidly decreasing. According to Sharenow's assessment, buffers may be depleted in the coming months - by then, even relatively small supply interruptions could trigger a sharp rise in prices. This article is a reprint from "Wall Street See News", author: Gao Zhimou; GMTEight editor: Wang Qiujia.