The Commodities Feed: Oil prices up even as Hormuz flows increase
The desk interprets the recent uptick in oil prices as fundamentally tied to diminishing prospects for US-Iran talks, which have shifted market sentiment. Per the full note from ing-think, the price of ICE Brent surged by 2.1% this week amid reports indicating that President Trump is inclined to maintain pressure on Iran rather than pursue a revival of negotiations. This comes despite increases in oil shipments through the critical Strait of Hormuz, suggesting a complex interplay between geopolitical risk and actual supply dynamics. With OPEC facing potential instability due to a possible Venezuelan exit, this narrative remains fluid as producers adapt to ongoing tensions.
What the desk is arguing
The desk sees the recent rise in oil prices as largely influenced by waning optimism surrounding US-Iran negotiations. This conclusion stems from the latest developments where President Trump indicated a focus on economic pressure over diplomatic talks. According to ing-think, the rise in prices, coupled with an increase in oil flows through the Strait of Hormuz, suggests market participants are recalibrating their expectations in the face of instability.
Specifically, reports suggest that oil flows through the Strait, previously estimated at 5 million barrels per day, may now be as high as 6-8 million barrels per day. This increase reflects producers' adaptability, navigating geopolitical tensions while finding alternative routes for their crude exports. As the environment evolves, the market's response indicates a blend of caution and opportunism in oil trading.
Where it sits in our coverage
Our consensus target for oil prices currently stands at 1.075, with a range spanning from 1.04 to 1.12. Specifically, jpmorgan is aligned with our view at a target of 1.10 for March 2026, while bofa offers a contrary stance with a target of 1.04 for the same tenor.
This outlook aligns closely with market sentiment, with the desk's assessment positioning at the higher end of the spectrum. As geopolitical tensions linger and OPEC's stability is tested, this projection reflects a cautious, albeit optimistic view on prices supported by recent trading patterns.
How other firms see it
Firms like jpmorgan and others share a bullish outlook on oil prices, supported by the recent price movements and geopolitical dynamics. In contrast, bofa expresses a more cautious stance, projecting lower targets.
Oil price movements could significantly impact currency pairs such as USD/CAD, as Canadian dollar valuations typically respond to fluctuations in crude prices. Additionally, watch for any shifts in central bank rhetoric regarding inflation expectations that might emerge from these developments.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Oil prices are rising amid diminishing hopes for US-Iran negotiations.
- 02Shipments through the Strait of Hormuz are increasing, highlighting market adaptability.
- 03OPEC is facing instability with possible exits from member countries, particularly Venezuela.
- 04Market responses indicate a recalibration of expectations around geopolitical risks.
Market implications
Traders should monitor prices around the 1.075 level as a potential breakout point. Any new insights or shifts in US-Iran negotiations could serve as a catalyst for further market movements in oil prices. Additionally, fluctuations in USD/CAD may provide additional positioning signals.
Risks to this view
A significant improvement in US-Iran relations could reverse the current positive sentiment surrounding oil prices, leading to a potential decline. Moreover, unexpected changes in OPEC's member dynamics, especially with Venezuela's potential exit, could also disrupt the market landscape.
Articles The Commodities Feed: Oil prices up even as Hormuz flows increase Published 02:53 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil prices edged higher as prospects for renewed US-Iran talks diminished. Meanwhile, oil shipments through the Strait of Hormuz appear to be gradually increasing Warren Patterson and Ewa Manthey Energy - Venezuela considering OPEC exit Oil prices ended higher for the first time this week yesterday, with ICE Brent settling up 2.1%. The renewed strength comes after reports that President Trump told mediators the US has no intention of returning to the terms of the June Memorandum of Understanding.
Instead, he indicated, the US is happy to see whether growing economic pressure on Iran yields better results. Optimism grew through the week amid efforts to restart talks. Clearly, this optimism has started to wane.
Despite diplomatic efforts hitting a roadblock, there are growing signs of additional oil flowing through the Strait of Hormuz. We’ve been assuming oil flows through this key chokepoint have averaged 5m b/d. However, some suggest volumes could be as high as 6-8m b/d.
More Persian Gulf oil producers seem to be shuttling their crude through the strait, while producers in the region are increasingly selling their crude outside the Strait of Hormuz. As the conflict persists, producers are adapting to the new realities and becoming increasingly comfortable navigating the strait. However, we’re clearly still far from normalisation.
OPEC faces the risk of another member exiting the group after the UAE’s departure earlier this year. Venezuela is considering leaving the group as relations with the US improve following the ousting of Nicolas Maduro at the start of the year. Venezuela entertaining the idea should not be too surprising, given that the US has taken control of Venezuelan oil sales.
Reports suggest it may also take a stake in Venezuelan oil fields. While an exit would reduce OPEC’s influence over the oil market, the group still holds a large market share, particularly when you factor in OPEC+. European gas prices also jumped yesterday as hopes of a resumption in US/Iran talks faded.
TTF settled 3.8% higher on the day. This strength continued in early morning trading today. European gas storage remains tight, and the region will struggle to hit the lower storage target of 75% ahead of the heating season.
However, LNG netbacks suggest LNG flows into Europe should pick up again as the region tries to bolster storage ahead of winter. Metals - Zinc rally eases but tight mine supply supports market Zinc prices eased from recent four-year highs, but market fundamentals remain supportive. The key signal remains the strength in nearby spreads.
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