Persian Gulf Turmoil Lifts Brent as Supply Risks Intensify

Key Moments

Persian Gulf Tensions Drive Price Rebound

ING analysts Warren Patterson and Ewa Manthey report that Brent crude rallied more than 4% in early trading after a sharp three-day decline, as geopolitical risks in the Persian Gulf escalated. The renewed strength in prices followed U.S. claims that it intercepted an unexpected attack on its troops, and Saudi Arabia’s interception of drones launched by Iranian-backed groups in Iraq that were aimed at Saudi energy infrastructure.

The analysts emphasize that mounting threats to Saudi oil facilities are heightening the probability of longer-lasting disruptions to supply. They note reports that Saudi Arabia’s 400k b/d Jazan refinery has been shut after Houthi attacks over the weekend. They add that, if this shutdown is confirmed, it would exacerbate concerns about refined product availability in a market already coping with disruptions linked to the Persian Gulf and Russia.

Middle Distillate Markets Show Extreme Tightness

According to the analysts, the strain in refined products, particularly middle distillates, is clearly visible in price indicators. They point out that the ICE gasoil crack has climbed above $70/bbl to record highs. At the same time, the prompt ICE gasoil timespread has moved into a steep backwardation of more than $80/bbl, signaling acute near-term tightness.

OPEC+ Supply Path and Market Balance to 2027

Patterson and Manthey state that OPEC+ is expected to confirm a production increase of 188k b/d for September at its meeting on 2 August. This step would complete the reversal of the 1.65m b/d in voluntary reductions that the group announced in 2023. They also cite reports suggesting that OPEC+ is likely to halt any additional output hikes after the September adjustment.

They argue that, once current disruptions fade, the scheduled OPEC+ supply increases contribute to the outlook for a broadly well-supplied oil market through 2027. However, they caution that policy direction within the group remains a major source of uncertainty over that horizon. In their view, there is scope for resistance to existing production quotas, especially given the operational disruptions several producers have experienced this year.

Structural Risks Versus Headline Supply Comfort

The analysts conclude that while the planned OPEC+ trajectory supports the notion of adequate supply through 2027, escalating security threats in the Persian Gulf and ongoing disruptions in refined products underscore a more fragile near-term balance. They highlight that the interplay between geopolitical risk, refinery outages, and OPEC+ policy debates will remain central to the oil market narrative over the coming years.

“After a heavy sell-off in the oil market over the last three days, prices popped higher in early morning trading, with Brent up more than 4% at the time of writing. Renewed strength comes after the US said it intercepted a surprise attack on US troops. Saudi Arabia intercepted drones from Iranian-backed groups in Iraq, which were targeting Saudi energy infrastructure.”

“Clearly, with Saudi oil infrastructure increasingly targeted, the risk of more prolonged supply disruptions grows. There are reports that the 400k b/d Jazan refinery in Saudi Arabia has shut following Houthi attacks over the weekend. If confirmed, this will only add to tightness concerns in the refined products market already dealing with disruptions from the Persian Gulf, as well as Russia.”

“The tightness, particularly in middle distillates, is well reflected in the ICE gasoil crack. It has now broken above $70/bbl to record levels. The prompt ICE gasoil timespread has surged to a backwardation of above $80/bbl.”

“OPEC+ is expected to announce a supply increase of 188k b/d for September when the group meets on 2 August. This would see the full unwinding of the 1.65m b/d of voluntary cuts announced back in 2023. There are reports that the group will likely pause any further supply increases following the September increase.”

“However, post-disruption, the announced supply increases from the group reinforce the view of a well-supplied market through 2027. The big uncertainty through 2027 will be around the group’s policy, with the potential for pushback on output quotas. Particularly given the disruptions that a number of producers have faced this year.”