Oil: Supply risks offset by Russia diesel deal – ING

ING analysts Warren Patterson and Ewa Manthey note that Oil prices are weaker despite heightened Middle East tensions, as strong Persian Gulf flows and a US-Russia diesel deal weigh on the market. They highlight that additional Russian diesel exports and a possible Russia-Ukraine energy ceasefire are pressuring middle distillate cracks, while inefficient Middle East trade flows and high freight rates keep refined product prices elevated.

Middle East risks versus Russia diesel flows

"After a weekend of escalation in the Middle East and the risk of the conflict broadening, one would think oil prices would be trading firmer this morning. However, this is not the case. ICE Brent has been down more than 2% at one stage this morning, despite the Houthis launching a deadly attack on an airport in Riyadh, Saudi Arabia."

"It would appear that the move in oil today is probably less to do with developments in the Middle East and more to do with Russia. US President Donald Trump announced a deal with Russia over the weekend, which will see Russia export 300kt of diesel immediately, followed by 500kt in November and 1mt in December. This will also see the US temporarily easing sanctions on Russian diesel."

"And so, while it is not going to solve the tightness in the middle distillate market, it is putting some pressure on the gasoil crack this morning. President Trump also announced that Russia and Ukraine agreed on an energy ceasefire, which would also put some pressure on the market."

"Clearly, in the run-up to the midterm elections, pressure is growing on Trump to address high oil and diesel prices – but in order to see a more meaningful move lower in refined product prices, we will need to see normalisation in the Middle East. Not just in the amount of oil flowing from the Persian Gulf, but also in the way this oil is coming out."

"From a risk/reward perspective, it is probably not great to put on too much risk from the long side with Brent trading over $100/bbl and the midterms approaching. There is always the very real risk of President Trump surprising markets."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)