ING analysts Warren Patterson and Ewa Manthey note that Oil has rallied strongly as US-Iran peace talks stall and energy flows through the Strait of Hormuz remain constrained. They highlight tightening market fundamentals, a roughly 13m b/d shortfall, and the need for higher prices to trigger demand destruction, while also flagging fresh US sanctions on Iranian Oil and related shipping.

Tightening balances drive Oil higher

“Oil is trading stronger this morning after attempts to get US-Iran peace talks back on track broke down, erasing hopes for a resumption of energy flows through the Strait of Hormuz anytime soon. ICE Brent is up around 2% in early-morning trading today, after rallying almost 17% over the course of last week.”

“The lack of progress means the market is tightening every day, requiring oil prices to reprice at higher levels. There’s little alternative to fill a roughly 13m b/d shortfall.”

“Clearly, the longer this persists, the more demand destruction we will need to see. To see further demand destruction, prices will need to move higher.”

“US efforts to cut off Iranian oil would add to the upside. Last week, the US seized a sanctioned tanker carrying Iranian oil in the Indian Ocean.”

“The US blockade appears aimed at forcing a resolution and increasing pressure on Iran to return to negotiations. The latest positioning data does not entirely capture the move seen in the market over the last week.”

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