Global oil prices edged higher on July 1 as investors monitored developments in US-Iran negotiations and the recovery of oil shipments through the Strait of Hormuz, although concerns over a potential supply surplus continued to weigh on the market. Brent crude traded above $73 per barrel, while West Texas Intermediate (WTI) hovered near $70 per barrel, following crude's steepest quarterly decline since the COVID-19 pandemic.

The recent weakness in oil prices has largely been driven by expectations that crude shipments through the Strait of Hormuz will continue to normalise after recent geopolitical tensions disrupted maritime traffic. The strategic waterway, which carries nearly one-fifth of the world's crude oil and liquefied natural gas exports, remains one of the most closely watched energy corridors globally. The gradual resumption of tanker movements has eased immediate concerns over prolonged supply disruptions, helping stabilise market sentiment.

Investor confidence also received a boost after senior US officials described indirect discussions between Washington and Tehran in Doha as constructive. According to reports, US negotiators Jared Kushner and Steve Witkoff participated in talks in Qatar, with technical-level discussions continuing as both sides seek to build on the current ceasefire framework and reduce regional tensions. However, broader issues, including Iran's nuclear programme and regional security concerns, remain unresolved despite ongoing diplomatic efforts.

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Shipping activity through the Strait of Hormuz has improved after recent exchanges of strikes involving the United States and Iran temporarily disrupted tanker movements. Iran has also reiterated its intention to play a greater role in overseeing maritime traffic through the strategically important passage. While the recovery in vessel traffic has reduced fears of immediate supply bottlenecks, traders remain cautious as geopolitical developments in the region continue to influence market direction.

At the same time, analysts are warning that increasing global supply could keep pressure on crude prices in the coming months. Morgan Stanley recently lowered its Brent crude price forecast for the second time in two weeks, citing the quicker-than-expected reopening of the Strait of Hormuz, resilient US crude production and weaker-than-anticipated demand from China. The brokerage said these factors could accelerate the emergence of a supply surplus in the global oil market.

Additional supply from major producers is also contributing to the bearish outlook. Iran said it has exported more than 40 million barrels of crude since the United States lifted its naval blockade, while Russian oil exports have climbed to record levels. The increase in shipments from both countries has added to crude inventories at sea, reinforcing concerns about oversupply. As markets continue to balance geopolitical risks against growing production and uncertain demand, oil prices are expected to remain volatile in the near term.

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