The Commodities Feed: Oil rises as Middle East tensions reignite
Per the full note , 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 , 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.
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