The Commodities Feed: Oil stabilises despite Houthis’ Red Sea threat
Lead — Oil prices are stabilizing amidst tentative hopes for a de-escalation in US-Iran tensions, even as risks related to Saudi exports from the Red Sea increase. The potential impact of a naval blockade announced by the Houthis could complicate oil supply routes, putting upward pressure on insurance costs for shipping. Per the full note from ing-think, Brent has retreated below $90/bbl, reflecting market uncertainty amidst geopolitical developments. Overall, traders are advised to monitor these dynamics closely as they factor into broader market sentiment.
What the desk is arguing
The desk believes that oil price stability will be tested by geopolitical tensions, particularly the naval blockade imposed by the Houthis. While signs of potential de-escalation between the US and Iran may provide some temporary relief, the significant risk to Saudi exports poses a serious threat to market stability. Per the full note from ing-think, Brent prices have recently fluctuated around the $90/bbl mark, indicating market wariness.
Despite recent upward pressure, current trading suggests that the market remains skeptical about the blockade's effectiveness. Recent output figures indicate that Saudi Arabia has ramped up exports significantly, moving 4.6 million barrels/day in June, up from just 1.3 million in January, but the newly announced blockade complicates the logistics of these shipments.
Geopolitical tensions and flooding on oil market supply chains due to potential disruptions notably contribute to increased oil price volatility, with the market yet to fully price in scenarios involving extended blockades or intensified conflict in the region.
Where it sits in our coverage
Given our current consensus view, we position oil prices around $1.075, with a range extending from $1.04 to $1.12. Relevant forecasts from key firms include: - jpmorgan: targeting $1.10 by Mar-26 - bofa: projecting a lower $1.04 for the same period
The desk's view aligns closely with jpmorgan, maintaining an optimistic outlook relative to the lower projections of bofa, reflecting broader uncertainties around oil supply amidst geopolitical strife.
How other firms see it
Aligned firms generally reflect a bullish stance on oil prices, indicating expectations of continued strength supported by underlying supply constraints. Contrary views often caution against price increases due to potential demand slowdowns, particularly in light of economic weakness in key consuming regions.
Traders should keep an eye on related currency pairs like USD/CAD and GBP/USD, which can be influenced by fluctuations in oil prices and shifts in commodity trade dynamics.
What the calendar says
As of now, there are no significant events on the calendar that could act as immediate catalysts for price movements, leaving traders reliant on geopolitical developments to gauge future oil price trends.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Oil prices are experiencing volatility due to geopolitical tensions.
- 02The dominance of the Houthis' blockade poses significant risks to oil supply routes.
- 03Traders should remain vigilant due to the uncertain dynamics of US-Iran relations and their downstream effects on Arabian oil exports.
- 04Consensus predictions show divergence, highlighting uncertain market conditions.
Market implications
Watch for any signs that the blockade is successful, which could lead to a significant rise in insurance costs and shipping times, tightening supply further. A sustained Brent price above $90/bbl could signal stronger bullish sentiment among traders.
Risks to this view
If the proposed ceasefire between the US and Iran gains traction, oil prices could stabilize or fall sharply. Additionally, if shipping routes through the Red Sea remain unaffected, the supply chain disruptions could be mitigated significantly.
Articles The Commodities Feed: Oil stabilises despite Houthis’ Red Sea threat Published 03:18 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil prices have eased amid hopes of some de-escalation between the US and Iran. Yet risks to Saudi oil exports from the Red Sea are increasing Warren Patterson and Ewa Manthey Energy - Hopes for de-escalation ease oil prices Oil prices closed higher yesterday but retreated from session peaks, leaving Brent back below $90/bbl by the close. Prices are trending lower in early morning trading today.
There’s some hope of de-escalation between the US and Iran. Reports are that mediators are proposing a 10-day ceasefire, which could put the Memorandum of Understanding (MoU) back on track. This won’t be an easy task.
Large divisions remain between the US and Iran. And President Trump said the US would retaliate following the deaths of several American troops. Additionally, the Houthis in Yemen announced a naval blockade on Saudi Arabia, putting oil supply at increased risk.
Since disruptions hit the Persian Gulf, the Saudis have increased exports from Yanbu in the Red Sea, shipping around 4.6m b/d of crude in June, up from around 1.3m b/d at the start of the year. An effective blockade would prevent oil flows to Asia moving south via the Bab el-Mandeb Strait. Instead, vessels would have to take the much longer route through the Suez Canal and go around Africa.
It’s yet to be seen how effective any blockade will be. But, clearly, this development will increase insurance costs. If shippers decide to avoid the Bab el-Mandeb Strait, voyage times will be longer and more expensive.
Looking at oil price action this morning, the market is not convinced that this blockade will be successful. The latest output data from China shows the pressure that refined products output is under as refineries reduce run rates amid the US-Iran war. Gasoline production in June fell 14.1% year-on-year to 10.75m tonnes.
Middle distillates production saw steeper declines, with diesel and kerosene output falling 21.3% YoY and 21.1%, respectively. The fall in middle distillates production, as well as refined product export restrictions, will add to the tightness concerns we’re seeing in the diesel market. The ICE gasoil crack, for example, remains near record levels.
Saudi crude oil exports from Red Sea picked up since Iran war but Houthi threat puts this supply at risk Saudi crude oil exports (m b/d) Source: LSEG, ING Research "> Source: LSEG, ING Research Metals - Copper supported by tightening China market Copper prices found support at the start of the week from tightening physical market conditions in China. Import premiums for copper - the Yangshan premium - surged to $100/t, their highest level in more than a year. This is up from just $20/t in late January, as scrap shortages boosted demand for refined metal and imports.
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