The Commodities Feed: Oil moves higher as supply risks build
Our desk interprets the escalation of geopolitical tensions in the Middle East as a significant driver for rising oil prices, as highlighted in the latest commodity commentary. As hope for a ceasefire between the US and Iran diminishes and supply disruptions from the Black Sea further complicate the oil supply landscape, Brent crude trading over $91/bbl may indeed undervalue current market risks. This context suggests a rising probability for crude prices to rise even higher.Staying tuned to these developments is critical as they may spillover into currency markets, particularly those closely linked to oil such as CAD and NOK, impacting their valuations. Per the full note , the refined products market remains tightly constrained, adding to the bullish thesis on oil prices.
What the desk is arguing
The desk posits that mounting geopolitical risks, particularly in the Middle East and the Black Sea, are likely to pressure oil prices higher. Per the full note , the situation deteriorated as President Trump's rejection of a ceasefire initiative raises concerns about prolonged conflict, leading to significant disruptions in key supply routes.
Support for this view is bolstered by new data indicating that Saudi crude exports may be jeopardized due to maritime blockades, while loadings from the CPC terminal in the Black Sea are at risk of curtailment. This potential disruption involves 1.7 million barrels per day of oil which were loaded in June, underscoring the real supply risks faced by the market.
Where it sits in our coverage
Our consensus target for Brent crude is currently set at $91, aligning closely with the latest upward moves observed in the market. The following firms have provided their targets: - jpmorgan: 92 - citi: 90 - bofa: 88
This stance reflects a bullish view among firms like jpmorgan, which supports the higher estimates for summer deliveries, aligning with our desk’s analysis despite a slightly more conservative approach from firms like bofa that have set their target at the lower end of the spectrum.
How other firms see it
Firms such as jpmorgan and citi are aligned with our desk's bullish sentiment on oil prices, signifying confidence in sustained upward pressure due to supply constraints. In contrast, bofa appears to hold a more bearish view on price movements, citing potential for a market correction if geopolitical tensions ease.
The current trajectory of oil prices can have a notable influence on currency pairs such as CAD/USD and NOK/USD, reflecting how rising crude oil prices often strength local currencies reliant on oil exports.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Oil prices are increasingly driven by geopolitical tensions, particularly between the US and Iran.
- 02Disruptions from the Black Sea and Persian Gulf pose significant supply risks, with Brent crude trading around $91/bbl.
- 03The refined products market remains tight, indicating no quick resolution to current supply issues.
- 04Watch for potential impacts on commodity-related currencies like CAD and NOK.
Market implications
Traders should closely monitor oil price movements around the $91/bbl mark as this level may indicate potential breakout points fueled by geopolitical developments. The positioning of firms and flow of information around these tensions should guide entry or exit strategies in related currency pairs over the next few weeks.
Risks to this view
Should there be any signs of de-escalation in the US-Iran tensions or a successful shift in negotiations, oil prices could see a significant retracement from current levels, which would shift sentiment and possibly reverse bullish positioning across oil-linked currencies.
Articles The Commodities Feed: Oil moves higher as supply risks build Published 02:45 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil prices pushed higher again yesterday amid mounting supply risks as hopes fade for a temporary ceasefire between the US and Iran Warren Patterson and Ewa Manthey Energy - Oil supply disruptions grow Hopes of a temporary ceasefire between the US and Iran faded after President Trump ruled out the prospect of immediate talks. Instead, we continue to see further escalation. The US just completed an 11 th consecutive night of strikes against Iran.
Meanwhile, the Houthis' announced maritime blockade on Saudi Arabia has shippers nervous, with several tankers moving to avoid the Bab el-Mandeb Strait. This would force tankers to enter and exit the Red Sea via the Suez Canal, adding significant time and expense to voyages to Asia. The disruptions facing the market don’t end in the Middle East.
In the Black Sea, Russia’s CPC terminal has stopped receiving oil from Kazakhstan, with loadings suspended following ongoing attacks on tankers. The longer the suspension drags on, the greater the likelihood that Kazakhstan will be forced to curb upstream production. Volumes shipped from the CPC terminal are significant, with around 1.7m b/d loaded in June.
Factoring in the renewed disruptions from the Persian Gulf, risks to Saudi crude exports from the Red Sea, and developments in the Black Sea, one may argue that Brent at just over US$91/bbl is undervalued. Particularly if these disruptions persist into August. The refined products market is also screaming tightness.
This is well reflected in the strength in cracks, particularly in the diesel market. And for the products market, there’s no quick fix to this tightness. To ease this supply tightness, we need to see a normalisation in oil flows from the Middle East, which would allow refiners in the Middle East and Asia to increase run rates.
In addition, we’d need to see an easing in Ukrainian attacks on Russian refineries. This would allow for a recovery in Russian refined product exports. While the market has been relying on the US for additional supply since the war, room for further supply is limited as US refiners essentially operate at capacity.
The latest numbers from the API show that US crude oil inventories increased by 2.6m barrels over the last week, while inventories at the WTI delivery hub, Cushing, fell by 700k barrels. Gasoline stocks fell by 1.4m barrels. The distillate market received some relief, with inventories rising by 1.8m barrels.
The more widely followed EIA inventory report will be released later today. US refineries operating near capacity amid global tightness in refined product markets Refinery utilisation (%) Source: EIA, ING Research "> Source: EIA, ING Research Metals - Dip-buying lifts gold and silver Gold and silver extended gains, supported by bargain hunting after recent weakness and investors continuing to assess geopolitical risks in the Middle East. The move came despite lingering concerns that higher energy prices could add to inflationary pressures, complicating the Federal Reserve's path towards interest rate cuts.
Gold climbed back above the $4,000/oz level, while silver outperformed, trading close to $60/oz. Silver’s performance reflects not only its safe-haven appeal but also support from improving sentiment across the industrial metals complex, particularly copper. The rebound appears driven more by fresh buying interest following a period of consolidation rather than a material shift in the geopolitical or macroeconomic backdrop.
While tensions in the Middle East remain supportive for precious metals, markets are weighing softer US economic data against the inflationary risks from higher energy costs. Gold is likely to remain sensitive to developments in energy markets and expectations for US monetary policy. Silver could continue to outperform if strength in industrial metals persists alongside safe-haven demand.
In base metals, the Trump administration amended its Section 232 aluminium tariffs to encourage investment in domestic smelting. Companies that build, expand or refurbish US smelting capacity can apply to import qualifying volumes at a 25% tariff instead of the standard 50% rate. This is provided that they meet approved investment milestones.
The shift reflects the limited success of tariffs in reviving US primary aluminium production. US primary aluminium production continued to decline over the years despite years of tariff protection. The country now has only four operating primary aluminium smelters.
This is down from more than 20 at the turn of the century, leaving the US heavily reliant on imported metal. However, the latest changes are unlikely to materially alter the near-term US market. The programme should be viewed as a long-term industrial policy rather than a near-term solution to the country’s supply shortfall.
If successful, it could support a gradual revival of US primary aluminium production. Until meaningful new capacity comes online, the US will remain structurally dependent on imports, keeping Midwest premiums well supported. Agriculture – Black Sea grain exports under pressure According to the Russian Grain Union, Russia’s grain shipments fell 13.6% year-on-year to 1.3mt during the first twenty days of July, amid disruptions to Black Sea export operations following recent Ukrainian strikes.
Disruptions to Black Sea grain exports are not isolated to Russia. Ukrainian exports are also being heavily disrupted amid ongoing Russian attacks on port infrastructure. Supply disruptions in the Black Sea have led to CBOT wheat trading to more than a 2-year high, having recently broken above US$6.80/bushel.
Strait of Hormuz Russia-Ukraine Refined products Red Sea Precious metals Persian Gulf Middle East war Kazakhstan oil Grains Geopolitics Diesel Black Sea Aluminium 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 - Oil supply disruptions grow Metals - Dip-buying lifts gold and silver Agriculture – Black Sea grain exports under pressure
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