ING analysts Warren Patterson and Ewa Manthey note that Oil remains supported, with ICE Brent trading comfortably above $100/bbl as Middle East tensions and concerns over flows through the Strait of Hormuz sustain a risk premium. They highlight IEA members’ plan to release remaining emergency reserves and discuss US inventory draws and potential US dissatisfaction with diesel release volumes.

Middle East risk keeps Brent elevated

“Oil remains well-supported. A pattern has set in: prices slide early in the session, then claw back most of those losses by the close. As a result, ICE Brent continues to comfortably trade above $100/bbl. Uncertainty in the Middle East and concerns over the sustainability of oil flows through the Strait of Hormuz has the market pricing in a significant risk premium.

“The longer this pickup in flows continues, the more likely the market will start giving back some of this risk premium. In order to see a full removal, there needs to be some kind of agreement between the US and Iran. This would provide the market with more confidence that stronger oil flows from the region will continue.”

“International Energy Agency members agreed to release the remaining 100m barrels of oil from strategic reserves. It’s part of the initial 400m barrels that members agreed back in March to help with the Persian Gulf supply shortfall. According to the IEA, members have distributed around 330m barrels to date.”

“From the 100m barrels to be released, 20m barrels will be diesel, and will make its way onto the market as soon as possible. The US probably won’t be happy with the scale of the release, particularly regarding diesel. Initial suggestions were that we could see around 50m barrels of diesel released.”

“The latest data from the EIA shows that US commercial crude oil inventories fell by 8.56m barrels over the last week, which is the largest weekly decline since February. Hurricane activity in the Gulf played part in the inventory decline, with offshore production shut in due to the storm. US output is estimated to have fallen by 300k b/d week-on-week.”