The Commodities Feed: Oil Falls Further

Why It Matters

The combined dip in oil and aluminium prices signals easing geopolitical risk, which could lower input costs for manufacturers but also hints at weakening demand in key Asian markets. Investors and policymakers will watch whether the Hormuz reopening stabilizes energy markets or triggers a new cycle of inventory rebuilding.

Key Takeaways

• Oil prices hit lowest since March on Hormuz reopening hopes
• China refinery runs drop to 66.3%, lowest since 2021
• US strategic petroleum reserve falls to 1983 low, 340 m barrels
• LME aluminium slides 4.4% as Middle East supply concerns ease
• Natural gas prices rise above $3.1/MMBtu amid LNG export demand

Pulse Analysis

The oil market is reacting to diplomatic headwinds easing in the Persian Gulf. Traders priced in a likely full reopening of the Strait of Hormuz, a critical chokepoint for roughly 20% of global oil shipments, driving WTI and Brent down to multi‑month lows. The U.S. Strategic Petroleum Reserve, now at roughly 340 million barrels—the smallest stockpile since the early 1980s—has been drawn down to temper fuel price spikes. With the Iran‑U.S. interim agreement on the table, policymakers may shift from emergency releases to gradual replenishment, a move that could tighten forward curves if demand rebounds.

China’s refining sector, a bellwether for global crude demand, posted a 9.1% YoY decline in May, with state‑owned plants operating at a 66.3% run rate, the lowest since late 2021. The slowdown stems from record‑low crude imports, pressured by supply uncertainties in the Gulf and tighter domestic margins. Reduced throughput not only curtails Asian demand for crude but also ripples through downstream commodities, influencing pricing dynamics for metals that rely on energy‑intensive processes.

Aluminium markets mirrored the broader risk‑off sentiment. LME prices fell over 4% as the prospect of Hormuz reopening eased supply worries that had previously inflated premiums. While Middle Eastern output—about 10% of global supply—plummeted 35% YoY in April, China’s primary aluminium production rose modestly, offsetting some of the shortfall. Nevertheless, smelters face lingering constraints from power and raw‑material logistics, suggesting that price relief may be temporary. The convergence of softer energy costs and moderated metal demand points to a cautious outlook for manufacturers navigating post‑conflict supply chains.