ING analysts Warren Patterson and Ewa Manthey note that Brent Oil has broken above US$90 as escalating conflict in the Persian Gulf and potential chokepoint closures disrupt vessel flows. They highlight the end of US SPR releases, rising speculative net longs in ICE Brent and gasoil, and increased vulnerability of the oil market to further supply shocks.
Brent rallies on supply risk escalation
“ICE Brent broke above US$90/bbl this morning with no let-up in the escalation in the Persian Gulf. The US and Iran continue to exchange strikes, which are proving to be deadly for both sides. If this escalation goes unchecked, we could return to an environment of wide-scale attacks across the Persian Gulf.”
“Vessel flows have essentially ground to a halt. LSEG data show that only 2 outbound visible oil tankers transited the Strait of Hormuz, with no inbound traffic. Flows are essentially back to where they were before the Memorandum of Understanding (MoU).”
“The issue for the oil market is that SPR releases, which have offered some relief during the war, are set to cease around the end of this month. This leaves the market relatively more vulnerable. Clearly, theres always the potential for SPRs to be tapped further.”
“Given the market moves in recent weeks, its unsurprising to see speculators increase their net long in ICE Brent. They bought 114,752 lots over the last reporting week, leaving them with a net long of 169,839 lots as of last Tuesday. The move was driven predominantly by fresh longs entering the market.”
“Meanwhile, speculators also increased their net long in ICE gasoil by 2,389 lots over the week to 71,875 lots. Given the recent move in the gasoil market, its surprising that we have not seen more aggressive speculative buying, though this may be more evident in the next Commitment of Traders report.”