SunSirs: Crude Oil Prices Fall; Refined Oil Retail Prices Cut Again in China

The price adjustment window for domestic refined oil products opened at midnight on July 3, marking another round of retail price reductions. This cycle saw a sharp decline in crude oil prices and a widening negative rate of change, leading to the fourth consecutive downward adjustment.

International oil prices dropped significantly during this pricing cycle. As of July 2, the settlement price for the August WTI crude oil futures contract was $68.69 per barrel, while the September Brent crude oil futures contract settled at $71.80 per barrel. This sharp decline was not driven by a single event but by the simultaneous release of four bearish fundamental factors: the resumption of shipping through Middle East waterways, a ceasefire framework reached between Lebanon, Israel, and the US, increased domestic US oil and gas production, and the extension of price cap policies on Russian oil. These factors, combined with the tug-of-war between bullish and bearish sentiments caused by recurring US-Iran tensions, exerted downward pressure on prices. By the tenth working day (July 3), the crude oil rate of change stood at -18.81%. This corresponds to a reduction of 950 RMB per tonne for gasoline and 915 RMB per tonne for diesel. In terms of per-liter prices, this translates to a drop of 0.74 RMB for 92# gasoline, 0.80 RMB for 95# gasoline, and 0.78 RMB for 0# diesel.

Regarding gasoline: Domestic refineries have recently reduced operating rates, leading to a slight decrease in refined oil output. Operating rates at independent refineries in Shandong remain around 50%, and the overall supply of refined oil is ample. Furthermore, domestic inventories of gasoline and diesel remain high, with stock levels at both independent and major refineries sitting at the upper end of the year's range. Market participants are largely adopting a wait-and-see approach; trading activity is sluggish, and gasoline market prices are trending downward. Meanwhile, with resident travel and other activities returning to normal, the continued rise in new energy vehicle penetration has exerted structural pressure, significantly impacting the traditional gasoline market. High fuel prices have also curbed driving frequency among some vehicle owners; lacking effective support on the demand side, gasoline prices have retreated under these bearish factors.

Regarding diesel: Supply has recently tightened slightly, yet the market remains in a traditional off-peak season. High summer temperatures have caused a slight decline in operating rates for infrastructure projects and outdoor industrial/mining operations, resulting in sluggish essential demand for diesel. With the summer harvest drawing to a close, agricultural fuel demand has contracted. Additionally, hot and rainy weather in South China has further suppressed downstream fuel consumption; as diesel demand weakens, market prices continue to slide.

Looking ahead: A loose supply-demand balance dominates the market, and oil prices are likely to remain weak. Three key supply-side factors—continued tanker traffic through the Strait of Hormuz, the bulk export of Saudi Arabia's accumulated crude oil stockpiles, and increased US drilling output—are materializing. Consequently, the geopolitical risk premium will continue to dissipate, with oil prices likely fluctuating widely around the $70 mark. However, should the US-Iran conflict escalate again or shipping through the Strait of Hormuz face major disruptions, safe-haven buying would surge, restoring the geopolitical premium and triggering a temporary price rebound. Domestically, refinery operating rates remain stable in the short term with normal refined product supplies; thus, gasoline and diesel prices are expected to trend downward in the near future.

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