ING analysts Warren Patterson and Ewa Manthey note that Oil prices, including ICE Brent above US$95/bbl, remain supported by heightened US-Iran tensions and robust Iraqi exports routed via the Strait of Hormuz. However, they highlight that if Hormuz flows remain uninterrupted and Saudi Arabia’s unchanged official selling prices signal looser fundamentals, upward pressure on Oil may fade despite tight refined product markets.

Brent strength tested by Hormuz flows

“Oil prices remain elevated, with ICE Brent holding above US$95/bbl amid a pickup in hostilities between the US and Iran this week. This included Iran firing missiles into neighbouring Gulf countries. Escalation is propping up crude, but the rally may lose traction if Hormuz shipments keep moving smoothly.”

“According to reports, Iraq exported the highest amount of oil since the start of the US-Iran war in August – a total of 2.35m b/d. Of that, around 2.26m b/d was exported from southern routes. This would need to eventually go through the Strait of Hormuz.”

“Furthermore, Saudi Arabia kept its official selling price for its flagship Arab Light unchanged at a $2/bbl discount for October loadings. The expectation had been for an increase, suggesting the market is not as tight as thought.”

“However, refined product markets remain significantly tight. The latest data from Insights Global shows that refined product inventories in the ARA region fell by 118kt week-on-week to 4.15mt. The decline was led by naphtha, gasoil and jet fuel.”

“Unless Persian Gulf and/or Russian diesel flows recover, the market is likely to tighten further as we head towards winter. This tightness in middle distillates is not isolated to Europe. US diesel cracks remain above $100/bbl, while retail diesel prices in the US have hit their highest level since mid-2022.”