Oil Faces Downward Pressure as Middle East Supply Flows Recover

Energy – Brent Forward Curve Signals Improving Supply Conditions

The oil market is heading for a fourth straight weekly decline as traffic through the Strait of Hormuz continues to recover. Rising crude flows are placing increasing pressure on the front end of the ICE Brent forward curve, which has been shifting deeper into contango—a market structure often associated with ample near-term supply. The return of disrupted barrels, combined with ongoing releases from strategic petroleum reserves, has improved supply availability. However, lower outright prices and a contango market structure may begin attracting additional buying interest.

In the ARA hub, data from Insight Global showed total refined product inventories declined by 22,000 tonnes week-on-week to 4.53 million tonnes. The decrease was mainly driven by lighter products, with gasoline and naphtha stocks dropping by 75,000 tonnes and 26,000 tonnes, respectively. Meanwhile, middle distillates posted gains, as jet fuel inventories increased by 66,000 tonnes and gasoil stocks rose by 16,000 tonnes.

Singapore’s refined product inventories also moved lower, falling by 1.73 million barrels to 40.45 million barrels. Although stock levels remain below the five-year average of 45.32 million barrels, they have recovered significantly from early-June lows of 34.41 million barrels. Declines were recorded across all major categories, with light products, middle distillates, and residual fuels decreasing by 665,000 barrels, 420,000 barrels, and 648,000 barrels, respectively.

In the natural gas market, front-month Henry Hub futures came under pressure after U.S. storage data showed a larger-than-expected build. Gas inventories increased by 87 billion cubic feet last week, surpassing both market expectations of 84 bcf and the five-year average increase of 64 bcf. Nevertheless, persistent heatwaves across parts of the United States are expected to support gas demand for electricity generation as cooling requirements remain elevated.

Metals – Aluminium Retreats as Supply Concerns Ease

LME aluminium prices weakened again, with three-month contracts slipping toward $3,000 per tonne as traders continued to remove the geopolitical risk premium that had accumulated during the Middle East conflict.

Market sentiment was dampened by an update from Emirates Global Aluminium (EGA), which announced that approximately 7% of production pots at its Al Taweelah smelter have been restarted. The progress highlights a gradual recovery in output following missile and drone attacks that disrupted operations earlier this year.

The development strengthened expectations that supply interruptions in the Gulf region will be temporary. Earlier fears of production losses and shipping disruptions through the Strait of Hormuz had fueled a strong rally in aluminium prices. However, improving production levels and easing geopolitical tensions have significantly enhanced the supply outlook.

Although a large share of Al Taweelah’s capacity remains offline and a complete recovery is still some distance away, the latest progress indicates that lost supply is steadily returning to the market, helping to alleviate concerns about aluminium availability.

Precious Metals – Gold Advances on Softer U.S. Economic Data

Gold posted strong gains after weaker-than-expected U.S. employment figures reduced concerns that the Federal Reserve might need to tighten monetary policy further this year. The softer labor market data pushed both Treasury yields and the U.S. dollar lower, increasing the attractiveness of non-yielding assets such as gold.

The rally extended gains already supported by less hawkish remarks from Fed Chair Kevin Warsh earlier in the week. Investors are increasingly reassessing the trajectory of U.S. monetary policy, with upcoming economic releases likely to play a crucial role in determining whether labor market weakness persists. Continued moderation in economic activity could lessen pressure on the Fed to raise rates, providing further support for gold prices.

Central banks also remained significant buyers of gold in May, purchasing a net 41 tonnes according to the World Gold Council. Poland led acquisitions with 18 tonnes, bringing its purchases for the year to 64 tonnes. China continued its long-running accumulation strategy, adding 10 tonnes and extending its buying streak to 20 consecutive months. Uzbekistan and Kazakhstan increased their reserves by 9 tonnes and 7 tonnes, respectively.

In contrast, Russia was a net seller, reducing its gold holdings by 6 tonnes during May and bringing year-to-date sales to 34 tonnes. Turkey also trimmed reserves by 3 tonnes, resulting in total sales of 81 tonnes so far this year. Despite these sales, robust demand from central banks continues to provide a strong underlying foundation for the gold market.