June thirtieth, two thousand twenty-five to July first, two thousand twenty-five
I. Foundation
resistance to change and hence greater dependability for the results shown in the past.
II. Insights
Our Viewpoints and ideas on market...
Oil trading returns to fundamentals (with expected trading range)
The geopolitical risk premium in oil prices has fallen sharply from highs of more than 15 dollars per barrel and now amounts to only a few dollars. Oil prices have largely returned to their levels before the conflict escalated, and the implied risk reflected in options pricing has also fallen sharply:Take the Strait of Hormuz as an example: the options-implied probability of a major supply disruption has fallen from a peak of around 15% to a very low level, almost in line with the beginning of 6.
The sharp decline in the risk premium in oil prices reflects several core market consensus views:
1) Several major geopolitical shocks in recent years have not caused actual disruptions to oil and gas supplies. The market has grown accustomed to this, which is why we previously judged that prices were “more likely to repeat last October’s trajectory.”
2) Other trading parties reacted relatively moderately, indicating that the United States and Qatar had received advance warning.
3) Both China and the United States have a strong incentive to avoid a major supply disruption.
4) Trump is highly focused on energy-price affordability and will not let prices surge unchecked.
5) Many investors are reluctant to actively bet on a sharp rise in oil prices and generally believe that the oil market will see a significant supply surplus in the fall.
Regarding the supply surplus, the fundamentals of oil have been discussed many times before on Planet, and they were also the basis for our previous short position (see Notes250523Reasons to short oil prices + Notes250527Reasons to short oil prices (continued)),This part remains “basically unchanged” apart from geopolitical shocks: 1) OPEC + ample supply; 2) sluggish demand growth; 3) inventories have risen for several consecutive months, and currently appear likely to keep rising over the next 18 months.
Bulls are focused on the decline in U.S. inventories but global data show that global crude inventories actually increased by about 130 ten thousand barrels per day over the past 90 days. In particular, In emerging markets such as Asia, substantial inventory accumulation has occurred, possibly as precautionary stockpiling against geopolitical uncertainty.
All of these data further support our view that the oil market is oversupplied and prices are headed lower.
The chart below shows inventory changes since the beginning of the year:
Chart: Oil inventories have risen for several consecutive months and will remain significantly oversupplied in the fall
Oil-producing countries are now focused on capturing as much market share as possible...
Based on current estimates from various institutions, the oil market will see a substantial supply surplus this year. Full-year supply growth will be nearly 4 times global demand growth, including strong production increases from non-OPEC countries such as Brazil and Guyana, as well as an expected additional 100 ten thousand barrels per day of supply from OPEC+ countries between 7 and 8 (equivalent to 1% of the global market).
However, structurally, before the fundamentals-driven downside trade resumes, it is more likely that a calmer environment with lower volatility emerges first，Tensions in the Middle East are easing, and summer demand is entering a transition period, but After the alert over this conflict is lifted, the market will inevitably price in unexpected events more cautiously, which also means that it will continue to demand a higher geopolitical risk premium for some time.(The 15-day call skew remains at its highest level in the past three years, indicating that some risk premium has yet to be fully absorbed.)
Chart: Prices may form a range between 55 and -65, with the upper bound a potentially viable area to short
At this point, In the second half of the year, prices are more likely to form a trading range between 55 and -65, with the upper bound a potentially viable area to short.
For a further outright decline, absent another event shock, we will have to wait until year-end.
We will update this as things change.
2025.07.01
III. Market Pulse
Our latest Comments on the economic and market environment
Another entry point for shorting the dollar
When the market has priced in around 2.5 Fed rate cuts this year, with some pricing room remaining before the most aggressive full-year total of 3 cuts, but short positions are relatively crowded in the near term,
This is also why we have not set our initial target for EUR/USD too far away:
Chart: Near the initial target level
If the dollar rebounds in the short term after reaching the target, it may first return to the moving average for 55 days. If the rationale remains unchanged, that would be an ideal level to consider shorting the dollar again later.
Chart: The 55-day chart is a possible rebound area
On the other hand, note that For EUR/USD, once it breaks through cleanly again,
on its way to reaching the 21 yearly high (1.235)there will be no further resistance along the way:
Chart: No obstacles remain before the 21 yearly high
2025.06.30
Note: All content in this article is for reference only, does not constitute investment advice, and is not a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for their decisions.