The Commodities Feed: Oil rises as Middle East tensions reignite
Per the full note source, ING commodities strategists argue that the renewed attacks on US troops and Saudi energy infrastructure upend the de-escalation narrative for the Persian Gulf, driving Brent crude up over 4%. The key evidence is the reported shutdown of Saudi Arabia's 400k b/d Jazan refinery and the surge in ICE gasoil crack spreads above $70/bbl to record levels, signaling acute tightness in middle distillates. The desk sees little relief for refined products, with Strait of Hormuz tanker traffic still effectively halted and diplomatic channels (Iran-Oman talks) failing to yield a solution. This commodity view has direct implications for inflation-sensitive FX pairs like USD/JPY and the Norwegian krone, though no consensus FX targets are provided in our internal coverage.
What the desk is arguing
Per the full note source, ING's Warren Patterson and Ewa Manthey frame the oil rally as a direct rejection of the de-escalation thesis in the Middle East. They argue that attacks on Saudi energy infrastructure and US troops make a swift US-Iran deal far less likely, prolonging supply disruption risk.
Supporting evidence is stark: the 400k b/d Jazan refinery has reportedly shut after Houthi strikes, while the ICE gasoil crack spread broke above $70/bbl to record levels. The prompt ICE gasoil timespread surged to a backwardation of over $80/bbl, underscoring exceptional tightness in middle distillates. The implication is that refined product supply will remain constrained, with little relief expected in the near term.
The desk implicitly rejects the alternative read that these attacks are short-term noise, as the scale of the strikes on energy infrastructure and the halt in Strait of Hormuz tanker traffic suggest a more sustained period of elevated risk. Iran's rejection of Oman's proposal for managing strait transits further dims hopes for quick normalization.
Key takeaways
- 01Renewed attacks on US and Saudi targets derail the Persian Gulf de-escalation narrative, driving Brent over 4% higher.
- 02Saudi Arabia's 400k b/d Jazan refinery reportedly shut, adding to already tight refined product markets.
- 03ICE gasoil crack spread hit a record above $70/bbl, with prompt timespread backwardation exceeding $80/bbl.
- 04Strait of Hormuz shipping remains effectively halted; Iran-Oman talks fail to produce a transit solution.
Market implications
Expect continued upward pressure on crude and refined products, particularly middle distillates, which should support the Norwegian krone and other oil-correlated currencies. Watch for additional supply disruptions that could push Brent above resistance near $80/bbl. The high gasoil crack may also influence central bank inflation assessments in energy-importing economies.
Risks to this view
A diplomatic breakthrough between the US and Iran could quickly unwind the risk premium, though the current scale of attacks makes that unlikely near term. Conversely, any further escalation involving Saudi oil exports through the Strait of Hormuz would trigger a sharper spike, potentially above $90/bbl. Refined product tightness could ease if the Jazan refinery restart is confirmed faster than expected.
Articles The Commodities Feed: Oil rises as Middle East tensions reignite Published 03:20 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil prices are trading higher this morning following strikes on US troops and Saudi energy infrastructure, highlighting the challenges in getting a US and Iran deal back on track Warren Patterson and Ewa Manthey Oil prices are trading softer this morning, with further talks between the US and Iran planned for Thursday Energy - Persian Gulf tensions resurface After a heavy sell-off in the oil market over the last three days, prices popped higher in early morning trading, with Brent up more than 4% at the time of writing. Renewed strength comes after the US said it intercepted a surprise attack on US troops. Saudi Arabia intercepted drones from Iranian-backed groups in Iraq, which were targeting Saudi energy infrastructure.
US and Saudi forces are carrying out strikes on weapon sites across eastern Iraq. These developments throw cold water on the idea of a swift de-escalation in the Persian Gulf. Clearly, with Saudi oil infrastructure increasingly targeted, the risk of more prolonged supply disruptions grows.
There are reports that the 400k b/d Jazan refinery in Saudi Arabia has shut following Houthi attacks over the weekend. If confirmed, this will only add to tightness concerns in the refined products market already dealing with disruptions from the Persian Gulf, as well as Russia. The tightness, particularly in middle distillates, is well reflected in the ICE gasoil crack.
It has now broken above $70/bbl to record levels. The prompt ICE gasoil timespread has surged to a backwardation of above $80/bbl. For middle distillates, there appears to be little relief on the horizon.
Meanwhile, tanker traffic through the Strait of Hormuz remains essentially halted. While Iran and Oman have held talks on managing vessel transits through the strait, Iran has rejected Oman’s proposal for a 50-50 shipping plan. It would facilitate an inbound route on one country’s side and the outbound route on the other’s.
Instead, Iran wants oversight of both inbound and outbound vessels. OPEC+ is expected to announce a supply increase of 188k b/d for September when the group meets on 2 August. This would see the full unwinding of the 1.65m b/d of voluntary cuts announced back in 2023.
There are reports that the group will likely pause any further supply increases following the September increase. Obviously, supply increases on paper don’t necessarily reflect an actual supply increase, given the ongoing supply disruptions in the Persian Gulf. However, post-disruption, the announced supply increases from the group reinforce the view of a well-supplied market through 2027.
The big uncertainty through 2027 will be around the group’s policy, with the potential for pushback on output quotas. Particularly given the disruptions that a number of producers have faced this year. The latest inventory numbers from the API show that US crude oil inventories fell by 3.3m barrels over the last week.
Refined products saw some minor relief, with gasoline and distillate stocks increasing by 900k barrels and 400k barrels, respectively. The more widely followed EIA numbers will be released later today. European natural gas prices have also bounced higher this morning, following the renewed tensions in the Middle East.
The European gas market is looking increasingly vulnerable as we head into the winter. QatarEnergy has reportedly extended its force majeure for buyers in Asia and Europe to as far as the end of September. There have also been reports of QatarEnergy looking to subcharter an LNG carrier until the end of October, given the ongoing disruptions to Qatari LNG exports.
EU LNG imports are on track to fall a little more than 25% YoY in July, which is making the job of refilling storage more difficult. EU gas storage is 56% full at the moment, below the 10-year seasonal average of 72%. Heatwaves across Europe will only add to the difficulty in filling up storage ahead of the winter.
Tighter-than-usual storage at the start of the heating season suggests that gas prices will remain elevated through the winter, with the risk of spikes higher. Metals – Gold under pressure ahead of Fed decision Gold prices came under renewed pressure with the market taking a cautious stance ahead of today’s Federal Reserve policy meeting. The market is expecting the Fed to keep rates on hold on Wednesday.
It's pricing in a more than 30% chance of a 25bp hike. Meanwhile, higher oil prices amid a re-escalation in the Middle East will weigh on gold in early morning trading, reigniting inflation concerns. The latest COTR report shows that the speculative net long position in LME copper increased by 12,668 lots to 60,771 lots in the week ending 24 July.
The move was driven by increased participation from both long and short positions. Tight supply conditions and low inventories lifted broader market sentiment. Positioning changes in other base metals were more modest, with money managers increasing their net long in LME aluminium by just 96 lots to 59,264 lots, while the net long in zinc increased by 4,107 lots to 39,736 lots.
Agriculture – Declining inventories drive Arabica coffee higher Arabica coffee extended its rally yesterday, settling more than 4.5% higher. The strength comes amid declining exchange inventories and heightened near-term supply concerns. ICE-monitored coffee stocks at US port warehouses fell by 18.5k bags on 27 July, marking a 25th consecutive daily decline to 292.8k bags, the lowest level since February 2024.
While global coffee production is expected to reach a record high in the 2026/27 season, supported by a strong Brazilian arabica crop, supply arrivals have been slower than anticipated. Heavy rainfall in Brazil's Minas Gerais region disrupted harvest activities. Despite expectations of a production surplus later in the season, tightening nearby supply has pushed the prompt Arabica timespread into pronounced backwardation, with the Sep/Dec spread surging above USc22/lb.
TTF Strait of Hormuz Softs Precious metals Persian Gulf Natural gas Middle East war Middle distillates LNG JKM Iran conflict Diesel Coffee 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 - Persian Gulf tensions resurface Metals – Gold under pressure ahead of Fed decision Agriculture – Declining inventories drive Arabica coffee higher
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