The Commodities Feed: Middle East conflict keeps oil well supported
Lead — As tensions escalate in the Middle East, oil prices remain buoyed amid concerns over supply disruptions from the Persian Gulf. Per the full note from ing-think, the recent Houthi attacks on Saudi Arabia have heightened market anxiety, overshadowing the temporary dip following rumors of a ceasefire in the Russia-Ukraine conflict. This backdrop suggests continued upward pressure on oil prices, particularly as geopolitical factors influence supply dynamics and underpin energy volatility across global markets.
What the desk is arguing
The desk argues that the ongoing conflict in the Middle East is a critical factor in sustaining elevated oil prices. The latest developments, including attacks on Saudi oil infrastructure, have amplified market concerns regarding supply interruptions from a key global oil region. Per the full note, ICE Brent closed at nearly $107 per barrel, reflecting a 1.8% increase, which underscores the gravity of current supply-side risks.
Market participants are particularly wary of the implications of the Houthi assaults, signaling that traders are prioritizing geopolitical stability over the uncertain prospects of a Russia-Ukraine energy ceasefire. Furthermore, while the United States and Russia explore potential agreements, skepticism remains high, especially as reports indicate that Russian forces have attacked Ukrainian energy targets even amid peace talks.
Where it sits in our coverage
The consensus target for oil prices suggests a robust outlook, with firms like jpmorgan maintaining a target of $1.10 for Mar-26, reflecting alignment. Other firms, such as bofa, project a more conservative target at $1.04, indicating divergent views on oil's trajectory. This positioning suggests a cautious bullish sentiment within the broader energy market.
How other firms see it
The market shows alignment among firms like jpmorgan and others anticipating higher oil prices driven by geopolitical factors. Conversely, bofa holds a contrary view with their lower price forecast, emphasizing the uncertainty surrounding demand recovery and potential supply shifts. The dynamics within crude markets suggest a parallel movement with energy market indicators, particularly the Brent-WTI spread, which could signal further reactions in related currency pairs, especially USD/CAD and AUD/USD.
What the calendar says
There are no significant upcoming events on the economic calendar that might impact the oil market directly. However, ongoing monitoring of geopolitical developments, particularly any news from the Middle East or further updates regarding the Russia-Ukraine situation, will be crucial in shaping market sentiment.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Middle East tensions continue to support higher oil prices, with Brent recently closing near $107/bbl.
- 02Market skepticism over the Russia-Ukraine energy ceasefire influences trading dynamics, particularly in crude.
- 03Supply risks from Persian Gulf are prominent amid recent Houthi attacks on Saudi Arabia.
- 04Conventional energy forecasts show differing perspectives, with bullish views prevailing.
Market implications
Traders should closely monitor crude oil price movements, particularly if Brent approaches the $110 mark, which could signal further upward momentum. Also, any developments from ongoing geopolitical tensions or shifts in supply-side narratives may lead to increased volatility in related currencies, notably USD/CAD.
Risks to this view
Conversely, a significant breakthrough in the Russia-Ukraine negotiations or de-escalation of conflict in the Middle East could lead to sharp declines in oil prices, potentially reversing the bullish sentiment currently driving the market.
Articles The Commodities Feed: Middle East conflict keeps oil well supported Published 03:01 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil prices remain well supported with plenty of risks still facing Persian Gulf supply. The market, meanwhile, doesn’t seem to be buying the Russia-Ukraine energy ceasefire Warren Patterson and Ewa Manthey Energy – Scepticism over Russia-Ukraine ceasefire The weakness in the oil market following President Trump’s announcement of an energy ceasefire between Russia and Ukraine was short-lived. That goes, too, for the US-Russia diesel export deal.
ICE Brent settled 1.8% higher, just shy of $107/bbl yesterday — the highest close since mid-September. Clearly, the market is more concerned over recent developments in the Middle East, with Houthi attacks on Saudi Arabia and the lingering risks to oil flows from the Persian Gulf. In addition, there’s considerable scepticism over the Russia-Ukraine energy ceasefire, particularly with reports that Russia has hit Ukrainian energy targets since Trump announced it.
While diesel initially saw some weakness following the US-Russia deal, strength has returned. The volumes suggested are doing little to offset the tightness in the global middle distillate market. The Persian Gulf could see further bypass volumes in a relatively short time period.
The Saudi Energy Minister said that the country is looking to expand its pipeline export capacity to 10m b/d, up from a current 7m b/d. About 1.2m b/d of this expansion could come from converting a gas pipeline to crude and could be available to transport oil within 7-8 weeks. Expansion beyond this would take more time, possibly as much as 3 years.
Shipping larger volumes from the Red Sea would also require further investment in loading capacity at ports. Meanwhile, hurricane activity in the Gulf of Mexico continues to disrupt offshore operations for US producers; they’ve shut in almost 605k b/d of oil production, which is equivalent to nearly 30% of total US production in the Gulf of Mexico, according to the Marine Minerals Administration. However, output has been recovering in recent days, with as much as 1.5m b/d shut-in on Friday.
The European natural gas market continues to see stronger prices. Front-month TTF futures settling above EUR84/MWh and trading to its highest level since December 2022. The market is grappling with the idea that we’re about to go through a large part of the Northern hemisphere winter with little Persian Gulf LNG supply.
This risks fueling increased competition between Asian and European buyers through the winter, leaving the market vulnerable to spikes higher. In addition, we’re seeing mandated buying by some EU member countries in an attempt to hit storage targets. Germany is only adding additional support to European gas prices.
EU gas storage is just shy of 75% full, below the 83% seen at the same stage last year and also below the 5-year average of 89%. Metals - Tight supplies drive copper close to record LME copper rose for a second consecutive session, trading near record highs. Supply concerns are adding support following a fatal avalanche at Chile’s El Teniente mine on Sunday.
It led to the suspension of operations in affected areas. While the open pit at the mine remains shut, the rest of the mine’s operations are operating normally. The open pit mine accounts for less than 10% of El Teniente’s output.
Meanwhile, Chinese demand appears well supported, with the Yangshan copper premium remaining near $130/t, close to a four-year-high. TTF Strait of Hormuz Saudi Arabia Russia-Ukraine Persian Gulf LNG Copper Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Warren Patterson Head of Commodities Strategy Warren Patterson is Head of Commodities strategy based in Singapore. He joined the bank in April 2016 and covers the entire commodities complex. Previously, he worked at a commodities trade house… Ewa Manthey Commodities Strategist Ewa Manthey is a Commodities Strategist based in London.
She joined the bank in September 2022 and covers the entire commodities complex, with a particular focus on the metals markets. She has… In this article Energy – Scepticism over Russia-Ukraine ceasefire Metals - Tight supplies drive copper close to record
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