Brent crude oil prices have surged above $95 per barrel, reaching their highest level in more than a month, as escalating tensions in the Persian Gulf have revived supply risks and added a geopolitical risk premium to the market [1]. According to ING analysts Warren Patterson and Ewa Manthey, recent strikes in the region included Iran hitting two oil tankers and the US conducting additional overnight strikes on Iranian targets, further intensifying concerns over regional oil supplies [1].
Despite ongoing conflict, oil flows through the Strait of Hormuz have continued, with the US energy secretary reporting that 17 million barrels of oil passed through the strait on Monday, marking the highest volume since the conflict began [1]. However, the heightened tensions have dashed hopes for a recovery in refined product flows, particularly impacting the diesel market. The ICE gasoil crack reached a record high of around $79 per barrel, while the US diesel crack traded well above $100 per barrel. Timespreads also reflect this acute tightness, with the ICE gasoil September/November spread trading at a backwardation of $80 per ton [1].
Disruptions to Middle East and Russian diesel exports, combined with little sign of an imminent recovery, are expected to keep middle distillate cracks highly elevated and volatile, especially as the market moves into a period of seasonally stronger demand. ING analysts note that the global refining system has little slack to compensate for the current disruptions [1].
The latest API data shows US crude oil inventories fell by 2.6 million barrels over the last week. Refined product inventories were mixed, with gasoline stocks rising by 300,000 barrels and distillate stocks falling by 300,000 barrels. The decline in distillate stocks is unlikely to alleviate concerns about market tightness [1].
CONCLUSION
Brent's climb above $95 per barrel underscores the market's sensitivity to escalating geopolitical risks in the Persian Gulf. Record diesel cracks and falling distillate inventories highlight ongoing supply tightness, with ING analysts expecting continued volatility and elevated prices as demand strengthens seasonally.