Oil prices dip amid broader rally on US-Iran tensions

Today’s headlines

What’s happening: Crude oil prices fell this morning after recording sharp gains in the previous session.

What happened: Renewed tensions between the US and Iran provided a boost to oil prices on Wednesday.

Continued flow of traffic through the Strait of Hormuz and strength in the US dollar weighed on crude prices this morning.

Why it matters: The US carried out strikes against Iran for a second consecutive day, hitting air defence systems, naval infrastructure and missile sites. The US also revoked a license allowing Iran to sell crude oil after a Qatari tanker was attacked near the Strait of Hormuz.

US President Donald Trump said on Wednesday that the memorandum of understanding signed with Iran to end the conflict is “over” and that he didn’t want to negotiate with Tehran.

Washington said the latest attacks were to reduce Iran’s ability to impact traffic through the Strait of Hormuz, while Tehran vowed retaliatory attacks on US military bases.

Meanwhile, data released on Wednesday showed that US crude oil inventories grew by 2.998 million barrels to 411.3 million barrels during the week ended July 3. This marked the first gain in inventories after 10 straight weeks of declines.

Gasoline inventories fell by 1.904 million barrels to 212.1 million barrels in the week, compared to market estimates of a drawdown of 1.6 million barrels, while distillate stockpiles contracted by 4.98 million barrels to 103.6 million barrels, versus expectations of a gain of 0.6 million barrels.

Strength in the US dollar exerted pressure on oil prices as a higher greenback makes commodities more expensive for foreign currency holders. The US dollar index, which measures the greenback’s performance versus a basket of major peers, edged higher to 101.01 this morning.

Spot price for WTI crude oil fell around 0.7% to $73.90 a barrel this morning, while Brent crude declined 0.6% to $78.44 a barrel.

In other energy trading, gasoline prices rose 0.6% to $3.1220, while natural gas added 0.3% to reach $3.220 and heating oil prices climbed 1.6% to $3.717.

What to watch: Investors will monitor news relates to the tensions between the US and Iran.

Data on the EIA’s (Energy Information Administration) natural gas stockpiles change (1830 UAE Time) will be released today. US natural gas stockpiles, which surged by 87 billion cubic feet in the week ending June 26, are expected to rise by 60 billion cubic feet in the latest week.

The markets today

Chinese stocks in focus today ahead of some key economic reports next week

Context: The CSI 300 index edged higher this morning as investors digested the latest inflation data.

Details: Data released this morning showed that China’s annual inflation eased to 1.0% in June from 1.2% in the previous month. The figure came in better than market estimates of 1.1%.

On a monthly basis, consumer prices declined 0.3% in June, after falling 0.1% in May.

China’s food prices fell 1.6% year-over-year in June, compared to a decline of 1.7% in the previous month. The region’s food prices fell for the third month in a row, signalling ample food supplies and weakness in consumer demand.

China’s producer prices rose 4.1% year-over-year in June, accelerating from a 3.9% gain in the previous month but coming in-line with market estimates. The region’s producer prices rose for the fourth straight month and surged the most since July 2022.

Meanwhile, the People’s Bank of China announced plans to step up financial support to increase domestic consumption. The central bank also acknowledged an imbalance between robust supply and weak demand. The PBOC has so far left interest rates and reserve requirement ratios unchanged this year.

The CSI 300 Index rose around 0.1% to 4,759.96, while the SSE Composite Index slipped 0.3% to 3,957.99 this morning. Meanwhile, the USD/CNY forex pair fell around 0.1% to 6.7981.

What to watch: Investors will keep an eye on further developments in the US-Iran negotiations.

Data on balance of trade, GDP growth rate and retail sales from China will be released next week. China’s economy, which grew by 5.0% year-over-year in the first quarter, accelerating from 4.5% in the fourth quarter, is expected to expand by 4.7% in the second quarter. Analysts expect China’s retail sales to surge by 3.7% year-over-year in June following a 0.6% decline in May. China’s trade surplus, which widened to $105.43 billion in May from $102.72 billion in the year-ago period, is expected to rise further to $110 billion in June.

Other Markets: European indices closed lower on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index down by 1.66%, 2.23%, 2.18% and 1.61%, respectively.

The news shaping the markets

US President Donald Trump said a peace deal between Russia and Ukraine is “much closer than people realise” after holding calls with Vladimir Putin and President Volodymyr Zelenskyy. The news sent the USD/RUB pair higher in forex trading this morning.

Indonesia’s motorbike sales rose 1.1% year-over-year to 515,136 units in June, compared to a 5.1% decline in the previous month. Motorbike sales declining by 0.3% year-over-year for the first half of the year lent support to the USD/IDR forex pair.

New Zealand’s Business NZ Performance of Manufacturing Index rose to 59.7 in June from a reading of 51.3 in May. This being the 12th straight month of growth sent the NZD/USD pair higher in forex trading this morning.

Argentina’s industrial production contracted 5.7% year-over-year in May, compared to a 2.8% decline in the previous month, which lent support to the USD/ARS forex pair.

Colombia’s exports jumped 19.2% year-over-year to $5.19 billion in May, following an 11.7% gain in April, sending the USD/COP pair lower in forex trading this morning.

What else to watch today

South Africa’s manufacturing production (1500 UAE Time), European Central Bank’s monetary policy meeting accounts (1530 UAE Time), Turkey’s foreign exchange reserves (1530 UAE Time), Mexico’s inflation rate (1600 UAE Time), PPI (1600 UAE Time) and monetary policy meeting minutes (1900 UAE Time) as well as US initial jobless claims (1630 UAE Time), continuing jobless claims (1630 UAE Time) and existing home sales (1800 UAE Time).