Key Moments
- ING strategists say oil has moved back to pre-war price levels but caution that expectations for a rapid and lasting supply recovery may be too optimistic.
- They describe an unstable mix of subdued physical buying and ongoing releases from strategic reserves, which they argue cannot persist indefinitely.
- ING expects clearer visibility on second-round inflation effects and the longer-term path for oil prices only later this year.
Strategists Question Strength of Supply Recovery
ING strategists Michiel Tukker and Benjamin Schroeder state that oil prices have returned to levels seen before the war, but they contend that the market is placing too much confidence in how quickly and how firmly supply will recover.
They point to a fragile setup in the oil market, driven by the interaction between demand, physical purchases, and flows from strategic reserves. In their view, this configuration is contributing to recent price moves and leaves room for renewed upward pressure.
Imbalance Between Supply, Demand, and Strategic Reserves
Tukker and Schroeder link the latest decline in oil prices to current supply-demand dynamics and the behavior of physical buyers and reserve managers.
| Market Element | Current Dynamic (per ING strategists) |
|---|---|
| Supply-demand balance | “The recent fall in oil prices can partly be attributed to the current imbalance between supply and demand.” |
| Physical buyers | “Physical buyers are still awaiting better pricing while countries’ strategic reserves continue to add supply to the market.” |
| Strategic reserves | “This is not a stable equilibrium, however. At some point, buyers will need to enter the market, and reserves will have to be replenished.” |
They argue that the combination of cautious purchasing by physical buyers and the continued use of strategic reserves is not sustainable. Eventually, they say, buyers will have to return more actively to the market, and the strategic barrels released so far will need to be replaced.
Near-Term Upside Risks and Inflation Uncertainty
Despite oil stabilizing close to pre-war levels, the ING team emphasizes that risks are skewed to the upside in the near term. As they put it, “Oil is stabilising around pre-war levels, but we continue to see upside risks in the near term that could pose some upward pressure on rates.”
They also underline that the broader macro implications are not yet fully visible. According to them, “Only later this year will we have a better understanding of the second-round inflation impact and more certainty about the trajectory of oil.”
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