Oil: Supply risks support Brent valuations – ING

ING strategists Warren Patterson and Ewa Manthey highlight growing Oil supply disruptions across the Middle East and Black Sea. They note risks to Saudi crude exports via the Red Sea, renewed Persian Gulf tensions, and halted Kazakhstan flows through Russia’s CPC terminal. ING argues Brent near US$91/bbl may be undervalued if these disruptions persist into August, while refined products remain structurally tight.

Brent underpinned by mounting disruptions

"Hopes of a temporary ceasefire between the US and Iran faded after President Trump ruled out the prospect of immediate talks. Instead, we continue to see further escalation. The US just completed an 11th consecutive night of strikes against Iran."

"Meanwhile, the Houthis' announced maritime blockade on Saudi Arabia has shippers nervous, with several tankers moving to avoid the Bab el-Mandeb Strait. This would force tankers to enter and exit the Red Sea via the Suez Canal, adding significant time and expense to voyages to Asia."

"The longer the suspension drags on, the greater the likelihood that Kazakhstan will be forced to curb upstream production. Volumes shipped from the CPC terminal are significant, with around 1.7m b/d loaded in June."

"Factoring in the renewed disruptions from the Persian Gulf, risks to Saudi crude exports from the Red Sea, and developments in the Black Sea, one may argue that Brent at just over US$91/bbl is undervalued. Particularly if these disruptions persist into August."

"To ease this supply tightness, we need to see a normalisation in oil flows from the Middle East, which would allow refiners in the Middle East and Asia to increase run rates. In addition, we’d need to see an easing in Ukrainian attacks on Russian refineries."

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