Energy price forecasts revised higher amid stalemate
The desk asserts that the recent upward revision in energy price forecasts, as outlined in the ING report, reflects persistent geopolitical tensions and their impact on oil markets. With Brent crude trading around $90/bbl and forecasts suggesting an average of $80/bbl in Q4, it appears that traders must factor in the ongoing stalemate between the US and Iran as well as ongoing vulnerabilities in European gas markets. Per the full note , tracking oil flows through the Strait of Hormuz remains complicated, but key estimates indicate a significant volume of oil is still moving, sustaining elevated prices despite fluctuating demand from China. This backdrop suggests FX traders should be particularly vigilant about energy-linked currencies, particularly given the absence of high-impact economic data in the coming weeks.
What the desk is arguing
The desk frames this as a critical moment for energy markets, with little sign of de-escalation in the US-Iran negotiations affecting oil flows. This stagnation supports higher oil prices and contributes to tighter refined product markets just as we approach the winter period when demand typically spikes.
Recent estimates indicate that oil flowing through the Strait of Hormuz has become stable at around 5 million b/d, though variability persists due to changes in shipping behaviors. The noted increase in global oil prices from June to July underscores the current market tightness and ongoing geopolitical uncertainties, as highlighted by the anticipated average of $80/bbl for Brent in the fourth quarter.
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Key takeaways
- 01Brent crude prices are projected to average $80/bbl in Q4 2023 due to ongoing geopolitical tensions.
- 02The absence of a breakthrough in US-Iran relations continues to create uncertainty in oil supply dynamics.
- 03European gas prices remain under pressure as winter approaches.
- 04China's crude oil imports are stabilizing at lower levels, impacting global demand forecasts.
Market implications
Traders should monitor the $90/bbl resistance level in Brent crude as a potential trigger for further currency volatility, particularly in energy-linked pairs. Additionally, the broader sentiment around oil prices could influence the performance of currencies such as CAD and NOK, which are heavily correlated with oil market fluctuations.
Risks to this view
A significant catalyst for a reversal in this outlook would be a breakthrough in US-Iran negotiations leading to increased oil flows from the region or a substantial rise in Chinese imports that exceeds expectations. Additionally, any unexpected changes in global energy demand due to economic shifts could quickly alter price trajectories.
Articles Energy price forecasts revised higher amid stalemate Published 11:42 Commodities, Food & Agri Energy Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download We revise our oil and gas forecasts higher with little sign of a breakthrough in the deadlock between the US and Iran. The oil market remains tight, but refined product markets are even tighter, while the European gas market remains vulnerable to spikes higher as we move closer to winter Warren Patterson Our base case is that Brent averages $80/bbl in the fourth quarter of the year Oil flowing through the Strait of Hormuz despite stalemate The US-Iran Memorandum of Understanding (MoU) proved short-lived, and mediation efforts have yet to restart negotiations. Oil prices have consequently risen from late-June and early-July levels, with ICE Brent trading back around the $90/bbl level.
Meanwhile, the brief flurry of Strait of Hormuz flows during the MoU period has eased. Nevertheless, Persian Gulf producers appear increasingly willing to move oil through the Strait and offer more barrels outside it. Tracking remains difficult because vessels often switch off transponders during transit.
US officials estimate flows near 10m b/d, while shipping trackers put them at 4-8m b/d, with estimates recently edging higher. Because a very large crude carrier can hold about 2m barrels, missing one or two vessels can materially distort daily estimates. We assume Hormuz flows of around 5m b/d.
Including pipeline bypass volumes, total Persian Gulf oil exports are roughly 50% of pre-war levels. China continues to provide relief to the oil market in the form of weaker imports. While imports appear to have bottomed in June, they remain well below year-ago levels.
Crude oil imports in July averaged 8.45m b/d, up 1.3m b/d MoM, but down 2.7m b/d year-on-year. Given strategic reserves in excess of 1.2bn barrels, China should be able to sustain these lower imports for the remainder of the year. Updated oil price scenarios Base case: Stalemate persists until shortly before the November US mid-term elections, followed by a limited stabilisation agreement covering Hormuz, military de-escalation and possible sanctions relief.
Persian Gulf oil flows remain near 50% of pre-war levels in October, then recover to about 90% by December, including bypass volumes. Brent averages $80/bbl in the fourth quarter, up from our previous forecast of $74/bbl. Optimistic case: A September agreement restores flows to pre-war levels by year-end, with Brent averaging $75/bbl in the fourth quarter.
Pessimistic case: Escalation increasingly disrupts Hormuz and bypass routes, leaving year-end flows near 50% of pre-war levels and lifting fourth-quarter Brent to an average of $104/bbl. Diesel tightness is more acute Diesel and gasoil cracks have reached record highs as Persian Gulf disruptions coincide with reduced Russian supply. Following Ukrainian drone attacks on refineries, Russia has banned diesel exports until the end of September amid domestic supply concerns.
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