Oil: Supply risks offset stronger flows – ING

ING analysts Warren Patterson and Ewa Manthey note that Oil supplies from the Persian Gulf are improving, but ICE Brent remains supported above $100/bbl as ongoing attacks on ships keep regional supply risks elevated. They highlight a tug-of-war between better flows and lingering threats, arguing that sustainably lower prices would require these risks to be resolved.

Brent supported by regional risks

"The oil market traded under pressure for much of the session yesterday, with ICE Brent trading down towards $97/bbl. However, with supply risks from the Persian Gulf still very real — with continued attacks on ships — the market still managed to settle above $100/bbl. There is a clear tug-of-war at the moment between improving supply from the region and lingering threats to supply."

"Clearly, it’s looking as though the only way to see prices trade sustainably lower is for lingering risks to be addressed. For now, the market is likely to remain nervous to any potential supply disruptions."

"One part of [the] oil market seeing more weakness recently: middle distillates. The ICE gasoil crack is trading around $73/bbl, down from a little more than $90/bbl in September. The prospect of diesel releases from European strategic reserves, along with the reduced risk of a US diesel export ban, has taken some pressure off the market."

"However, it’s only the front-end of the curve which has seen weakness, with cracks further along the curve remaining better supported. This reflects diesel releases being frontloaded. The market is also of the view that this is a temporary fix that doesn’t solve the underlying tightness in the middle distillate market."

"In order to solve this, the market needs to see a normalisation in Persian Gulf and Russian diesel flows. This clearly seems unlikely anytime soon."

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