Brent: Geopolitical risk keeps cracks elevated – ING

ING analysts warn that geopolitical risk keeps Brent crude oil prices elevated. The price of Brent reached $95 per barrel, its highest level in over a month, following escalating tensions in the Persian Gulf. Iran struck two oil tankers in the region on the weekend, and the US conducted additional strikes on Iranian targets.

The situation has led to a tight supply of refined products, with record ICE gasoil cracks and extreme backwardation. Middle distillate cracks are expected to remain highly elevated and volatile as demand increases seasonally. The situation is exacerbated by disruptions to Middle East and Russian diesel exports, with the ICE gasoil Sept/Nov spread at a backwardation of $80/t.

The US energy secretary reported that 17 million barrels of oil flowed through the Strait of Hormuz, the highest volume since the conflict began. However, despite the flow, the tensions in the region put crossings at risk. The API data shows US crude oil inventories fell by 2.6 million barrels last week, while distillate stocks decreased by 300k barrels, leaving the global refining system with little slack to compensate for the disruptions.

The global refining system is unable to make up for the current disruptions, suggesting that middle distillate cracks will likely stay high and volatile as demand picks up. The geopolitical tensions in the Middle East are putting pressure on oil prices, which could have significant implications for the global economy.