The Commodities Feed: Oil bounces on Persian Gulf re-escalation
The recent escalation in tensions in the Persian Gulf, particularly Iranian military actions against commercial shipping, has caused oil prices to bounce significantly, with Brent crude recently trading above $76 per barrel following a 3% rise and an additional 2.8% uptick in early trading. Per the full note from ing-think, this volatility is compounded by U.S. geopolitical responses, including military strikes and the revocation of a temporary waiver allowing Iranian oil sales, heightening supply concerns in a market already grappling with tight inventories. With U.S. crude inventories reported to have decreased by 400,000 barrels last week, the physical oil market appears to be tightening further, supporting product cracks and adding complexity to the broader energy narrative. Traders should remain vigilant as these developments create significant fluctuations in energy prices and related liquidity metrics.
What the desk is arguing
The re-escalation of tensions in the Persian Gulf is expected to sustain upward pressure on oil prices as supply concerns intensify. The desk frames this as a pivotal moment, reflected in Brent crude's recent movement above $76 per barrel after a remarkable rise driven by Iranian military actions and U.S. responses.
Additionally, a marked drop in U.S. crude inventories and a shift in the curve structure returning to backwardation signal a tightening physical market, indicating that bullish sentiment may further dominate the oil landscape. Notably, gasoline and distillate stocks saw significant reductions, suggesting that the refined product market also faces upward pressure.
Where it sits in our coverage
The internal coverage consensus on oil prices projects a target range now placed around $1.075, with jpmorgan forecasting a target of $1.10 and bofa at a lower end of $1.04, both with a Mar-26 horizon. This positioning aligns with our bullish outlook amid tightening inventories.
How other firms see it
Aligned firms such as jpmorgan and bofa anticipate continued upward momentum in oil prices, whereas contrary firms remain cautious about potential corrections should geopolitical tensions ease. The trajectory of the USD and its relationship with energy prices, especially as the U.S. dollar traditionally moves inversely with oil, may also provide critical insights for traders navigating these turbulent waters.
What the calendar says
Currently, there are no significant upcoming economic events on the calendar that could serve as catalysts in this context.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Recent Iranian military actions have reignited supply concerns, pushing oil prices higher.
- 02U.S. crude inventories fell by 400,000 barrels, indicating tightening supply dynamics.
- 03The physical market shows signs of strength with backwardation re-establishing after recent contango conditions.
- 04Traders should monitor geopolitical developments that may influence oil price trajectories.
Market implications
Watch for further price movements around $76 per barrel as increased tensions and inventory reports could drive market sentiment. Given the current climate, traders should pay close attention to any geopolitical developments in the Persian Gulf that may impact supply forecasts.
Risks to this view
A significant reversal in oil prices could occur if diplomatic negotiations between the U.S. and Iran make notable progress, easing geopolitical tensions. Additionally, a substantial increase in crude inventories could undermine current bullish sentiment, necessitating a reassessment of pricing expectations.
Articles The Commodities Feed: Oil bounces on Persian Gulf re-escalation 02:21 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Re-escalation in the Persian Gulf has reignited supply concerns, pushing oil prices higher amid questions about the direction of US-Iran peace talks Warren Patterson and Ewa Manthey Energy - US revokes temporary sanction waiver for Iran Oil prices spiked following Iranian attacks on three ships in the Strait of Hormuz, including an LNG carrier and an oil tanker. ICE Brent settled a little more than 3% higher yesterday, and in early trading this morning it's up another 2.8%, leaving it trading above $76/bbl. The curve structure also strengthened, with the front end returning to backwardation after recently flipping into contango amid the ramp-up of Persian Gulf supply.
In addition, the physical market may have begun to turn. Dated Brent vs front-line Brent futures appear to have bottomed, creeping higher in recent days. The Iranian attacks saw the US respond in a firm manner, with renewed strikes.
There are reports of explosions near the strait. In addition to military strikes, the US revoked a temporary licence that it had previously issued to allow for the sale of Iranian oil. While the revocation doesn’t fundamentally change oil market dynamics, it’s important from a sentiment perspective.
It heightens the risk of a breakdown in the temporary deal between the US and Iran. The API reported overnight that US crude oil inventories fell by 400k barrels over the last week. Stocks at the WTI delivery hub, Cushing, fell by just 100k barrels.
Inventory draws on the refined product side were more significant, with gasoline and distillate stocks falling by 2.9m barrels and 1.8m barrels, respectively. Tight inventories should continue to provide support to product cracks. Ukrainian drone strikes on Russian refineries have intensified, adding fresh support to middle‑distillate markets.
The sustained damage is now dragging down diesel exports, further tightening the refined-product balance. This comes at a time when the market is still awaiting a normalisation in refined product flows from the Middle East. As a result, the ICE gasoil crack has strengthened, trading back above US$50/bbl.
The latest re-escalation in the Middle East will only provide further support. European gas prices also leapt higher with the latest developments in the Persian Gulf. TTF is up more than 4% in early morning trading today, moving above EUR48/MWh.
The European gas market continues to look tight as we move through the injection season. Storage is less than 51% full compared to a 5-year average of 66%. LNG imports in Europe have fallen as Asia has increasingly turned to the spot market amid supply disruptions in the Middle East.
The latest re-escalation only adds to concerns about tightness as Europe moves closer to the heating season. Metals – China ramps up gold buying Gold edged lower in Tuesday’s afternoon trading after an early advance as investors looked ahead to the release of the June Federal Open Market Committee minutes later this week for further clues on the Federal Reserve's policy path. The metal continues to trade largely in line with shifting US rate expectations.
Last week's weaker-than-expected jobs data reduced expectations of additional tightening and helped gold stabilise back above the $4,000/oz level. Ongoing security concerns around the Strait of Hormuz also supported safe-haven demand. Meanwhile, official-sector demand remains supportive.
Data from the People's Bank of China showed it increased its gold reserves for a 20th consecutive month in June. This marks its largest monthly purchase since late 2023. The continued accumulation highlights China's ongoing efforts to diversify reserves and reinforces a broader trend of strong central bank buying.
It should continue to provide an important source of support for gold prices despite recent volatility. In base metals, aluminium extended gains for a second session, rebounding from a four-month low as lower prices attracted buying interest in China. The metal had come under pressure last week as Middle Eastern supply recovered faster than expected following the ceasefire, but the market is still expected to remain in deficit this year.
Supporting the constructive outlook, China's aluminium spot inventories fell for a twelfth consecutive session to 1.09Mt, more than 25% below their April peak. Renewed attacks on vessels near the Strait of Hormuz added to shipping risk concerns. Meanwhile, the latest COTR data showed speculative sentiment continued to soften.
Net long positions in LME aluminium fell by 14,891 lots for a fourth consecutive week to 53,923 lots in the week ending 3 July, the lowest level since May 2019. The decline was driven largely by long liquidation as concerns over potential shipping disruptions through the Strait of Hormuz eased following the ceasefire. In copper, net longs fell by 1,815 lots for a fifth straight week to 46,921 lots, while zinc net longs increased by 2,959 lots to 31,181 lots after three consecutive weeks of declines.
Strait of Hormuz Speculators Sanctions Russia-Ukraine Precious metals Persian Gulf Natural gas Middle distillates LNG Iran oil exports Iran conflict Gold Geopolitics Diesel Central banks API 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 - US revokes temporary sanction waiver for Iran Metals – China ramps up gold buying
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