Huatai Futures: Yesterday, the energy sector declined overall, trading on the expectation of easing tensions in Iran.

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Author: Energy Group

Related Commodities: Crude Oil, Asphalt, LPG, Low-Sulfur Fuel Oil, Fuel Oil

Yesterday, the domestic energy sector commodities experienced a significant decline overall. By the close of trading in the afternoon, the main contract of crude oil SC fell by 12.75%, the main contract of fuel oil FU fell by 11.17%, the main contract of low-sulfur fuel oil LU fell by 8.36%, the main contract of liquefied petroleum gas PG fell by 5.41%, and the main contract of petroleum asphalt BU fell by 5.56%.

The overall decline in the energy sector yesterday was mainly due to expectations of easing tensions in Iran. Referencing CCTV News, U.S. President Trump stated in the White House when asked about “U.S. gasoline prices surpassing $4 per gallon,” that “as long as U.S. troops leave Iran, gasoline prices will drop accordingly,” and he also said, “U.S. troops may leave in two to three weeks. If an agreement is reached with Iran, the conflict might end even sooner.” Additionally, recently, China and Pakistan issued initiatives to restore peace and stability in the Middle East. Iran’s president also conveyed a willingness to end the war under the premise of ensuring national security. Overall, a ceasefire in the Middle East and reopening of the straits align with the interests of multiple parties. Market expectations of easing tensions are increasing, leading to a decline in the implied geopolitical premium of crude oil and driving the sector lower.

However, from a practical perspective, the situation remains tense. The transit volume through the Strait of Hormuz remains low, and the extent and scope of damage to Middle Eastern energy infrastructure continue to accumulate. Compared to crude oil, the contradictions in refined oil products are more prominent. The supply gap in the Middle East, combined with reduced refinery operation loads in other regions, makes refined oil more scarce than crude oil. Among these, the contradictions in diesel, jet fuel, naphtha, and LPG are relatively prominent, and have already triggered negative feedback in terminal consumption. Crack spreads and monthly differentials remain firm.

Looking ahead, the short-term price trend of the energy sector will still be dominated by geopolitical factors. Repeated changes in news flow lead to extremely high market volatility, with significant risks on both sides, so caution is advised.

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Editor: Zhu Hennan