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US Oil Update: Futures Drop as Markets Assess US-Iran Peace Deal Progress

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Crude oil futures fell in midday trading on Thursday as a proposed ceasefire between Israel and Lebanon raised hopes for a broader peace deal in the Middle East, though skepticism lingered amid reports of continued clashes in southern Lebanon.

Front-month West Texas Intermediate crude futures dropped by 3.79% to $92.54 per barrel, while Brent futures were down 3.07% to $94.78/bbl.

ING strategists said that inventories have provided a cushion for the oil market, but even if we see an imminent restart of oil flows via the Strait of Hormuz, the recovery will be slow and gradual.

US crude inventories dropped amid strong export and refining demand as the Middle East conflict entered its fourth month. Crude stockpiles decreased by 8 million barrels to 433.7 mmbbls in the week ended May 29, the Energy Information Administration said in its weekly report on Wednesday.

US Strategic Petroleum Reserve inventories fell to 357.1 mmbbls, down from 365.1 mmbbls a week ago, marking a weekly decline of 8 mmbbls.

Iran has indicated that any wider agreement with the US would partly depend on an end to hostilities between Israel and the Iran-backed Hezbollah movement. Israel and Lebanon said on Wednesday that they had agreed to a ceasefire, raising hopes for a broader deal between Washington and Tehran.

However, Hezbollah rejected a new ceasefire in Lebanon on Thursday, and Israel said it would not withdraw its troops from the country.

Soojin Kim, research analyst at MUFG, said markets continue to focus on efforts to extend the US-Iran peace deal and reopen the Strait of Hormuz, but negotiations remain slow and sporadic flare-ups in regional tensions persist.

Iran's Islamic Revolutionary Guard reportedly said peace in the region would not be possible unless Israel withdrew from the occupied areas in Lebanon.

The IRGC said in a statement that its main condition for accepting a ceasefire in the region is a ceasefire on all fronts, including Lebanon.

On Wednesday, Iranian Foreign Minister Abbas Araqchi said that Tehran's contacts with Washington had not been cut off, but that negotiations had made no progress. Araqchi added that both sides were reviewing the exchanged texts.

Meanwhile, the prolonged closure of the Hormuz is raising concerns that the world will need to tap crude inventories further after the International Energy Agency said global oil stocks could hit critical levels ahead of the peak summer demand period.

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EMEA Oil Update: Crude Falls as US-Iran Peace Hopes Grow After Israel-Lebanon Truce

EMEA crude futures fell in after-hours trading on Thursday as the market assessed the potential easing of Middle East tensions following a ceasefire between Israel and Lebanon, despite reports of continued clashes in southern Lebanon.Brent crude futures fell 2.8% to $95.09 per barrel, while Murban crude declined 3.7% to $93.60/bbl."We've been here before with ceasefire deals and whether Hezbollah is going to join such a deal remains questionable," said Derek Halpenny, head of research at MUFG.On Wednesday, Israel and Lebanon said they had agreed to a ceasefire, raising hopes for a broader deal between the US and Iran. Tehran has indicated that any wider agreement with Washington would partly depend on an end to hostilities between Israel and the Iran-backed Hezbollah movement.The ceasefire announcement prompted cautious optimism that easing cross-border conflict could open the door to renewed US-Iran talks. However, Hezbollah rejected a new ceasefire in Lebanon on Thursday, and Israel said it would not withdraw its troops from the country.Iran's Islamic Revolutionary Guard Corps reportedly said peace in the region would not be possible unless Israel withdrew from the occupied areas in Lebanon.IRGC said in a statement that the main condition for accepting a ceasefire in the regional war has been a ceasefire on all fronts, including Lebanon.Iranian Foreign Minister Abbas Araqchi said on Wednesday that Tehran's contacts with Washington had not been cut off, but that negotiations had made no progress. He added that both sides were reviewing the exchanged texts.Strategists at Saxo Bank said the broader regional conflict remains unresolved and risks to energy supplies continue.Meanwhile, the Strait of Hormuz remains the oil market's central focus, with supply disruptions and continued closures pushing energy prices to record highs.On Wednesday, President Trump reportedly said that the Strait would reopen "immediately" if Iran signed a memorandum of understanding to halt hostilities, adding that some parts of the strategic waterway would first need to be cleared of mines.Every day that passes without a resumption of oil flows leaves the market increasingly vulnerable, ING strategists said, adding that this increases the pressure to strike a deal.On the supply front, US crude stockpiles decreased by 8 million barrels to 433.7 mmbbls in the week ended May 29, the Energy Information Administration said in its weekly report on Wednesday.US Strategic Petroleum Reserve inventories fell to 357.1 mmbbls, down from 365.1 mmbbls a week ago, marking a weekly decline of 8 mmbbls.ING said that inventories are likely to continue to tighten into Q3, leaving upside risk to prices.

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EMEA Natural Gas Update: Futures Edge Lower Amid Conflicting Signals on US-Iran Talks

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UAE Unlikely to Flood Oil Markets Despite OPEC Exit, Kpler Says

The UAE may have quit the Organization of Petroleum Exporting Countries to free itself from output limitations, but the Gulf producer is likely to adopt a disciplined approach to increase its exports rather than flooding the markets in the event normal energy flows through the Strait of Hormuz resumes, according to trade intelligence firm Kpler.Any increase in flows from the UAE is likely to happen gradually, with several officials from the country maintaining that it will continue to have coordination and communication with other producer states despite not being part of the group anymore, said Amena Bakr, head of Middle East & Opec+ at Kpler, in an interview with."Do I expect the UAE to suddenly open the taps and flood the market? Let's say Hormuz opens tomorrow? No, I don't expect them to do that. Because that would kind of start a price war and increase the tension between the UAE and Saudi Arabia and the other neighbors," Bakr said."So, any increase will happen in a gradual process. And it will be also communicated, so don't expect a big jump in their exports if and when Hormuz opens," she said.The UAE in late-April decided to quit OPEC, after a nearly six-decade long association, in a development that shocked energy markets, citing long-term strategic and economic priorities and future energy plans.Previous disputes due to UAE's dissatisfaction with its quota allocations had led to a revision of its baseline a few years earlier. But it surprised markets with its decision to exit the group as it wanted to increase its capacity to 5 million barrels per day, expected to be delivered by 2027 or even as early as end of this year, Bakr said.The UAE is using the 1.8 mmbbl/d capacity Fujairah pipeline for its exports, while also constructing a second alternative pipeline to bypass the strait. The new pipeline is about 50% complete and is projected to be ready in 2027, helping the Gulf producer to double its capacity to export shipments without relying on the Strait."So the way they frame it is that it no longer makes economic sense for the UAE to be part of the OPEC, OPEC+ organizations because we are at a point now where the market needs more supply, and they want to have this flexibility after the resumption of Hormuz flows to increase that supply to the market without any constraints," Bakr said.According to Bakr, the ongoing energy supply crisis due to the Middle East conflict and the effective closure of the Strait of Hormuz, which handles almost one-fifth of global oil and gas flows, has removed any uncertainty from the market that UAE's departure from OPEC could have otherwise had. However, the exit of the group's third largest member will rob OPEC of its spare capacity."Spare capacity is firing power when it comes to managing the market. It's the kind of checks and balances, and it's really important for any group to hold spare capacity. And with the UAE exiting, you have 30% of spare capacity that was taken out," Bakr said."Is this [going to] cause a collapse of the entire system, of a collapse of OPEC? So, I think OPEC is still going to continue. It's going to evolve. Maybe they'll add more members in the future, it's going to, you know, take on a different form. The idea of market management, I think, is still significant and will be maintained."While UAE's exit could encourage other member nations to consider a similar strategy, the energy supply crisis is likely to help OPEC maintain cohesion within the group as it doesn't have to deal with the contentious issue of production cuts for the time being, Bakr said."You get tension when you impose cuts. And we're in a completely opposite situation now. We're in a situation where the market needs more supply," she added.In case of a normalcy in situation, which includes the complete unwinding of the voluntary cuts and a resumption of regular flows through Hormuz Strait, the OPEC could consider a fair distribution of UAE's quota among other members, Bakr added.