According to ING analysts Warren Patterson and Ewa Manthey, oil prices remain highly sensitive to ongoing developments in the Middle East, particularly due to continued disruptions in flows through the Strait of Hormuz. Recent re-escalation in the Persian Gulf has pushed oil prices higher, with fresh attacks casting further doubt on the resumption of energy flows through this critical chokepoint. The analysts note that there are mixed messages regarding the progress of negotiations between the US and Iran, and each day without a resumption of oil flows increases market vulnerability and pressure to reach a deal [1].
In addition to geopolitical risks, the analysts highlight significant draws in US crude inventories. Weekly data from the EIA shows that US commercial crude oil inventories fell by 7.97 million barrels over the last week, contributing to a total draw of 32 million barrels over the past month and a half. When including releases from the strategic petroleum reserve, total crude inventories declined by 15.97 million barrels in the last week alone. While seasonal declines in inventories are typical as refiners ramp up operations, the current pace of decline is faster than usual [1].
ING argues that these tightening inventories, combined with ongoing supply disruptions, leave upside risk to oil prices as the market heads into the third quarter. Even if oil flows through the Strait of Hormuz resume imminently, the recovery is expected to be slow and gradual, suggesting that inventories are likely to continue tightening and supporting higher prices in the near term [1].
CONCLUSION
Tightening US crude inventories and persistent Middle East supply disruptions are creating significant upside risk for oil prices, according to ING analysts. The market remains vulnerable, and any recovery in supply is expected to be slow, suggesting continued support for higher oil prices into the third quarter.