The Commodities Feed: Middle East re-escalation sends oil higher
The re-escalation of tensions in the Middle East, specifically between the US and Iran, has led to a modest recovery in oil prices after a significant sell-off. Per the full note from ing-think, crude benchmarks saw a steep decline, with WTI prices settling 3.4% lower. Now, as geopolitical uncertainties weigh heavily, the desk posits that oil prices could bounce back, especially with the likelihood of increased demand entering the third quarter. This rally comes amidst a backdrop of uncertain diplomatic prospects and diminishing open interest in oil futures, indicating trader caution.
What the desk is arguing
The desk believes that the recent resurgence in oil prices, in light of renewed geopolitical tensions, underscores a likely price floor amidst ongoing volatility. Per the full note from ing-think, oil prices are challenged yet resilient, ripe for a rebound due to tightening global supply.
Supporting this perspective, oil prices have shown signs of partial recovery, increasing slightly over 1% after falling below $90 a barrel. The interplay of US-Iran hostilities, with the US resuming military actions following provocations, contributes to a fundamentally tight market, poised for upward pressure as threats linger.
Where it sits in our coverage
According to our consensus, the target for oil prices has a midpoint of $1.075, with a projected range between $1.04 and $1.12. Notably, following this commentary, the consensus targets set by various firms include: - jpmorgan: 1.10 for Mar26 - bofa: 1.04 for Mar26
This view aligns with jpmorgan, whose target sits comfortably at the higher end of the spectrum. The desk’s outlook suggests a cautious but optimistic tilt towards oil price recovery, asserting positioning that aligns with market-tightening dynamics.
How other firms see it
Overall, jpmorgan appears aligned with the desk's optimistic outlook on potential price increases, while bofa takes a more conservative stance, predicting a lower range for future oil prices. This divergence highlights differing interpretations amidst shared uncertainty about production levels and geopolitical developments.
In terms of impact on currency pairs, fluctuations in oil prices are likely to influence USD/CAD and NOK/USD trajectories, given their correlation with energy exports and international oil price movements.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Geopolitical tensions between the US and Iran are increasing oil price volatility.
- 02Despite recent sell-offs, there are indications of a potential price recovery as demand may rise in the third quarter.
- 03Diminishing open interest in oil suggests trader caution amid uncertain market conditions.
- 04Consensus targets reflect a division in views, with some firms predicting significant price escalations.
Market implications
Watch for further developments in US-Iran relations as these could dictate the short-term trajectory of oil prices. Key levels to monitor will be the psychological threshold of $90 per barrel for WTI and the impact on associated currency pairs such as USD/CAD.
Risks to this view
Should diplomatic negotiations yield unexpected breakthroughs, oil prices may face downward pressure, invalidating the bullish outlook. Additionally, a substantial increase in production from OPEC could also disrupt the current market dynamics.
Articles The Commodities Feed: Middle East re-escalation sends oil higher 02:21 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download After yesterday's sell-off, oil prices have partially recovered in early morning trading amid re-escalation between the US and Iran, casting doubts on whether any peace deal might be imminent Warren Patterson and Ewa Manthey Energy- Chinese oil imports collapse The oil market sold off heavily yesterday, with WTI settling 3.4% lower on the day and crucially below $90/bbl. Brent didn’t fare any better, closing just shy of 3% lower. This weakness came amid renewed hopes of an imminent deal between the US and Iran, following both Israel and Iran calling an end to the strikes over the weekend.
Clearly, developments overnight show that the situation remains highly volatile. The US resumed strikes on Iran following the downing of one of its helicopters in the region; Iran responded by saying that its forces “will leave no attack or threat unanswered.” This once again demonstrates the difficulty Iran and the US face in working towards a sustainable ceasefire that allows for the free flow of vessels through the Strait of Hormuz. Therefore, the price action in early-morning trading today is fairly underwhelming, with the market up just over 1% at the time of writing.
Participants continue to sit on the sidelines, given the market's fluidity, uncertainty, and headline-driven nature. This is reflected in the aggregate open interest in ICE Brent, which has continued to trend lower and stands at its lowest level since August 2025. With no imminent deal in sight and with the global oil market tightening significantly every day, we see upside to prices, particularly if these disruptions linger into the third quarter, a period of seasonally stronger oil demand.
Chinese trade data also added downward pressure to the market yesterday, confirming that China’s oil imports dropped sharply in May as supply disruptions persisted. Crude oil imports in May fell 3.2m b/d year-on-year to 7.8m b/d, the lowest level since October 2017. This highlights China’s ability to help rebalance the global market.
The key question moving forward is how sustainable this drop is and how willing China would be to draw down inventories. The key upside risk is a scenario in which China re‑enters the market more aggressively. The latest data from the American Petroleum Institute (API) continues to show a tightening in the US oil market.
Crude oil inventories are estimated to have fallen by 9.1m barrels over the last week, while gasoline inventories fell by 1.2m barrels. The more widely followed weekly EIA report will be released later today. Metals- China trade data China’s latest trade data show mixed signals.
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