Key Moments
- ING estimates that as much as a $10/bbl risk premium is currently embedded in oil prices ahead of US-Iran nuclear talks.
- ICE Brent timespreads indicate a better supplied physical market, even as flat prices remain supported by geopolitical uncertainty.
- The EIA reported a 15.99m-barrel weekly build in US crude inventories, the largest since February 2023, led by Gulf Coast stock increases.
Geopolitics at the Center of the Oil Price Debate
ING analysts Warren Patterson and Ewa Manthey highlight that negotiations on the US-Iran nuclear file are set to play a pivotal role in shaping the near-term direction of oil prices, with a significant risk premium at stake.
“It’s a big day for oil markets with all eyes on US-Iran nuclear talks, which are scheduled for later today. A constructive resolution would likely prompt the market to gradually unwind as much as a $10/bbl risk premium, which we believe is currently priced in. If talks break down, the upside risk remains, but the market may hold off on a full reaction until the scale of potential US action against Iran becomes clearer.”
Potential Paths for US-Iran Tensions
In their assessment, Patterson and Manthey outline how different scenarios around US actions and Iran’s response could affect crude prices and supply risks.
“Targeted and brief strikes that avoid energy infrastructure (like those seen last year) with limited retaliation from Iran, would likely provide a brief spike higher in oil prices. The move, though, would likely be short-lived. Longer-term action from the US, with more aggressive retaliation from Iran, would increase supply risks for the oil market.”
Timespreads Signal Looser Physical Market Conditions
Despite a firm flat price supported by geopolitical uncertainty, the analysts note that Brent timespreads are sending a different signal about underlying supply-demand conditions.
“While the flat price remains well supported amid geopolitical uncertainty, ICE Brent timespreads have come under much more pressure recently, suggesting the physical market is becoming increasingly well supplied. Kazakh oil flows from the CPC terminal are normalising following disruptions earlier this year. Floating storage continues to decline, indicating that previously stranded sanctioned barrels are finally finding buyers and moving toward their destinations.”
Role of Fundamentals and OPEC+ Policy
The ING team points out that a reduction in geopolitical tension could allow softer fundamentals and producer policy decisions to exert more downward pressure on prices.
“If we are to see de-escalation between the US and Iran, it should allow weaker fundamentals to feed through to a lower flat price — particularly if OPEC+ resumes supply increases from April, which we believe they will agree to this weekend.”
US Inventory Data Add to Bearish Signals
Recent inventory figures from the Energy Information Administration contribute to a more bearish fundamental backdrop, according to the analysts.
“Yesterday’s inventory data from the Energy Information Administration (EIA) was bearish. The EIA reported that US crude oil inventories increased by 15.99m barrels over the last week- the largest weekly increase since February 2023. The increase was dominated by inventory builds on the Gulf Coast.”
Key Market Indicators at a Glance
| Factor | Detail |
|---|---|
| Implied risk premium | Up to $10/bbl linked to US-Iran uncertainty |
| ICE Brent structure | Timespreads under pressure, signaling improved supply |
| US crude inventories | +15.99m barrels over the last week, largest weekly build since February 2023 |
| Regional inventory driver | Gulf Coast builds dominated the US stock increase |
| Kazakh flows via CPC | Normalizing after earlier disruptions |
| Floating storage | Declining as sanctioned barrels find buyers and move to destinations |
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