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Oil: Inventory drawdown keeps prices supported – DBS

DBS Group Research strategist Eugene Leow warns that low Oil inventories, especially in the United States, could keep Oil prices and global yields supported even if a US-Iran deal reopens the Strait of Hormuz. He notes that recent optimism has pushed Oil and Treasury yields lower, but the ongoing drawdown in crude stocks and Strategic Petroleum Reserves remains a concern for inflation.

Inventory risks after Middle East disruption

"We are growing increasingly wary of the oil inventory drawdown over the past few months and the consequences if market participants suddenly decide that oil prices should be much higher even if the US-Iran conflict ends."

"To recap, peak market stresses occurred in late March and this is represented by the significant physical premium for crude."

"Over the past few weeks, market participants were also increasingly optimistic that a deal between US and Iran can be reached, allowing the Strait of Hormuz to reopen."

"Accordingly, investors brought oil prices and Treasury yields lower as immediate term inflation concerns ease."

"In the best case scenario where a meaningful amount of energy traffic resumes in the coming weeks, we think that the rebuild of inventories across many countries will mean that oil prices will be supported for some time."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

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The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

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