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ING analysts Warren Patterson and Ewa Manthey note Brent rebounded over 4% after recent losses as renewed attacks on US troops and Saudi energy infrastructure undermine prospects for a US–Iran deal. They highlight growing risks of prolonged supply disruptions, tight middle distillate markets, halted traffic through the Strait of Hormuz, and OPEC+ plans to unwind voluntary cuts while maintaining a broadly well-supplied market outlook through 2027.
Persian Gulf tensions tighten oil outlook
“After a heavy sell-off in the oil market over the last three days, prices popped higher in early morning trading, with Brent up more than 4% at the time of writing. Renewed strength comes after the US said it intercepted a surprise attack on US troops. Saudi Arabia intercepted drones from Iranian-backed groups in Iraq, which were targeting Saudi energy infrastructure.”
“Clearly, with Saudi oil infrastructure increasingly targeted, the risk of more prolonged supply disruptions grows. There are reports that the 400k b/d Jazan refinery in Saudi Arabia has shut following Houthi attacks over the weekend. If confirmed, this will only add to tightness concerns in the refined products market already dealing with disruptions from the Persian Gulf, as well as Russia.”
“The tightness, particularly in middle distillates, is well reflected in the ICE gasoil crack. It has now broken above $70/bbl to record levels. The prompt ICE gasoil timespread has surged to a backwardation of above $80/bbl.”
“OPEC+ is expected to announce a supply increase of 188k b/d for September when the group meets on 2 August. This would see the full unwinding of the 1.65m b/d of voluntary cuts announced back in 2023. There are reports that the group will likely pause any further supply increases following the September increase.”
“However, post-disruption, the announced supply increases from the group reinforce the view of a well-supplied market through 2027. The big uncertainty through 2027 will be around the group’s policy, with the potential for pushback on output quotas. Particularly given the disruptions that a number of producers have faced this year.”
