Brent: Geopolitical premium eases after six-day rally – Deutsche Bank

Deutsche Bank analysts have noted that Brent Oil has ended a six-day upward trend as some geopolitical risk premium has been removed. Despite intraday fluctuations caused by Houthi and Iranian developments, the bank observed that refined product markets remain constrained and that Brent crude remains substantially higher than pre-Iran war levels.

In the past 24 hours, traders have continued to reduce the probability of a Federal Reserve rate increase, propelling the S&P 500 (+0.65%) to new all-time highs. The primary driver was a surprising drop in US PPI inflation, which benefited dovish sentiments as lower oil prices further supported these expectations. Brent crude (-2.15%) finally broke its six-day winning streak, closing at $87.07/bbl, and marking the end of a consecutive six-day gain.

Though the decline was not significant, Brent's price fell from its intraday low of $85.85/bbl after Houthi-run Saba news agency reported that the Houthis were targeting Aramco refinery in Jizan region. Earlier in the session, Iran's state-run IRIB quoted a joint military command spokesman stating that no vessel could safely navigate the Strait of Hormuz without approval.

Nonetheless, overall, the recent surge in geopolitical risk premium has been unwound from oil markets due to the substantial shipping through Hormuz by shuttle transfers and vessels operating without transponders. While crude oil prices have declined over 25% from their spring peak, the contraction in refined product prices has been less pronounced.

Presently, Brent crude is almost 20% above pre-Iran war levels, whereas US wholesale gasoline prices are approximately 50% higher, and European diesel prices are about 60% higher.