The Commodities Feed: Oil maintains gains amid Persian Gulf escalation
Per the full note , ING argues that oil's rally above $95/bbl is fragile despite Persian Gulf escalation, as Strait of Hormuz flows remain uninterrupted and Iraq's exports hit a wartime high. The desk highlights that Saudi's unchanged OSP for Arab Light suggests the market is not as tight as thought, but refined product inventories in Europe and the US point to persistent middle-distillate tightness into winter. With no internal coverage on oil-linked currencies and no high-impact calendar events, the focus is on supply-side risks and distillate cracks. The consensus view likely sees Brent rangebound, with upside risk if Hormuz is disrupted.
What the desk is arguing
ING's commodities team argues that while ICE Brent holding above $95/bbl on US-Iran escalation looks supportive, the rally is fragile because actual flows through the Strait of Hormuz have not been disrupted. They note that Iraq exported 2.35 million b/d in August—the highest since the start of the US-Iran war—with 2.26 million b/d from southern routes that must pass through Hormuz, implying supply lines remain open.
The desk challenges the bullish narrative by pointing to Saudi Arabia keeping its Arab Light OSP unchanged at a $2/bbl discount for October, which they say suggests the market is not as tight as expected. However, they see significant tightness in refined products: ARA inventories fell 118kt week-on-week to 4.15mt, with gasoil now seasonally below 2022 levels, and US diesel cracks above $100/bbl, indicating that middle-distillate supply is the real pressure point heading into winter.
Key takeaways
- 01Brent holds above $95/bbl but rally is fragile absent a Hormuz disruption
- 02Iraq's August exports hit wartime high at 2.35M b/d, signaling open supply routes
- 03Saudi's unchanged OSP implies crude market not as tight as escalation suggests
- 04Middle distillate tightness persists: ARA gasoil stocks below 2022 levels, US diesel cracks >$100/bbl
Market implications
Watch Brent's ability to sustain $95/bbl on any Hormuz headlines; a break below could signal fade. Monitor US diesel crack spreads and ARA gasoil stocks for further tightness into winter. Positioning in oil-linked currencies like CAD and NOK may shift if crude retraces.
Risks to this view
A direct military confrontation in the Strait of Hormuz or a confirmed tanker attack would invalidate the fragile-rally thesis and send prices sharply higher. Conversely, a diplomatic de-escalation or a surprise build in refined product inventories could accelerate the downside move.
Articles The Commodities Feed: Oil maintains gains amid Persian Gulf escalation Published 03:59 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil prices are still holding most of their recent gains, but those could prove fragile. If Strait of Hormuz flows continue uninterrupted despite the latest escalation, the upward pressure on prices may begin to fade Warren Patterson and Ewa Manthey Energy - Iraq oil exports pick up in August Oil prices remain elevated, with ICE Brent holding above US$95/bbl amid a pickup in hostilities between the US and Iran this week. This included Iran firing missiles into neighbouring Gulf countries.
Escalation is propping up crude, but the rally may lose traction if Hormuz shipments keep moving smoothly. According to reports, Iraq exported the highest amount of oil since the start of the US-Iran war in August -– a total of 2.35m b/d. Of that, around 2.26m b/d was exported from southern routes.
This would need to eventually go through the Strait of Hormuz. Furthermore, Saudi Arabia kept its official selling price for its flagship Arab Light unchanged at a $2/bbl discount for October loadings. The expectation had been for an increase, suggesting the market is not as tight as thought.
However, refined product markets remain significantly tight. The latest data from Insights Global shows that refined product inventories in the ARA region fell by 118kt week-on-week to 4.15mt. The decline was led by naphtha, gasoil and jet fuel.
With gasoil inventories at 1.61mt, they are now seasonally below 2022 levels. Unless Persian Gulf and/or Russian diesel flows recover, the market is likely to tighten further as we head towards winter. This tightness in middle distillates is not isolated to Europe.
US diesel cracks remain above $100/bbl, while retail diesel prices in the US have hit their highest level since mid-2022. In Singapore, refined product stocks fell by 140k barrels over the week to 39m barrels. Declines were driven by light and middle distillates, falling 837k barrels and 615k barrels, respectively.
Light distillate stocks now stand at 10.7m barrels, down from a peak of 19.5m barrels in February this year, and the lowest level since 2021. In gas markets, spot Asian LNG traded at its highest levels since 2022. Amid this strength, the JKM-TTF spread widened again, making it less clear whether flexible cargoes should continue to be sent to Europe.
In the US, the natural gas market edged lower yesterday, with front-month Henry Hub futures down 1.45%. This is despite the EIA storage data coming in largely as expected, with a 30bcf increase over the week. The market had been looking for a 31bcf increase.
However, storage remains very comfortable, more than 5% above the 5-year average. Metals - Central bank gold demand remains resilient Central banks continued to add to gold reserves in July, reporting net purchases of 23 tonnes, according to World Gold Council data. Emerging market central banks remained the main buyers, led by China and Poland.
China's central bank extended its buying streak to 21 consecutive months, adding 20 tonnes. Poland bought a further 8 tonnes, taking its year-to-date purchases to 90 tonnes. Central banks in the Czech Republic, Kazakhstan, Malaysia and Bolivia also increased holdings.
Russia was the largest seller, reducing reserves by 6 tonnes. Although central bank buying has slowed compared to a year ago, official sector demand continues to provide support for the gold market. Ongoing reserve diversification efforts among emerging economies should help sustain structural demand, even if purchases moderate from recent highs.
Gold prices rose more than 2% on Thursday following a weaker-than-expected ADP employment report on Wednesday. Comments from US Federal Reserve official Christopher Waller, suggesting he is open to keeping rates on hold at the next FOMC meeting (assuming no surprises on the inflation front), provided an additional boost. Agriculture – Wheat falls on Russia-Ukraine peace hopes CBOT wheat came under further pressure yesterday with the December contract settling more than 2.5% lower on the day.
The decline comes as Russian President Vladimir Putin signalled potential progress in Russia-Ukraine peace negotiations, easing concerns over grain supplies from the Black Sea. Russia and Ukraine account for more than a quarter of global wheat exports, making developments in the conflict a key driver of market sentiment. Vietnam’s Statistics Office estimates August coffee exports at 132kt -– a sharp jump of 56.3% year-on-year from 84.2kt a year earlier, supported by improving supply.
This leaves cumulative coffee exports at 1.33mt over the first eight months of the year, up 13.7% YoY. Strait of Hormuz Saudi Arabia Russia-Ukraine Persian Gulf Natural gas LNG Iraq Henry Hub Grains Gold Gasoil Federal Reserve Board Diesel shortage Coffee Central banks 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 - Iraq oil exports pick up in August Metals - Central bank gold demand remains resilient Agriculture – Wheat falls on Russia-Ukraine peace hopes
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