Geopolitics and Reserve Taps Keep Brent Crude Above $100

Key Moments

Middle East Risk Premium Supports Brent

Analysts Warren Patterson and Ewa Manthey at ING report that oil prices remain firmly underpinned, with ICE Brent crude trading well above $100 per barrel. They observe a recurring intraday pattern in which prices soften early in the session but subsequently recover most of the losses by the close, helping keep Brent at elevated levels.

According to their commentary, unresolved geopolitical uncertainty in the Middle East and ongoing concerns about the reliability of crude flows through the Strait of Hormuz are sustaining a notable risk premium in the market. This premium reflects the market’s sensitivity to any potential disruption from a key transit route for regional supply.

The analysts note that as long as the recent increase in flows from the region is maintained, there is a growing likelihood that the market will gradually unwind part of this embedded risk pricing. They add that a complete removal of the premium would require “some kind of agreement between the US and Iran,” which they say would give traders greater confidence that stronger regional oil flows can be sustained.

IEA Strategic Reserve Release and Product Mix

Patterson and Manthey highlight the decision by International Energy Agency members to proceed with the release of the remaining 100m barrels of oil from their strategic reserves. This volume forms part of the initial 400m-barrel package agreed in March, which was intended to address a supply shortfall from the Persian Gulf region. The IEA estimates that around 330m barrels have already been distributed.

Out of the final 100m barrels, 20m barrels will be in the form of diesel, which is expected to reach the market as quickly as possible. The ING analysts suggest that the United States “probably won’t be happy with the scale of the release, particularly regarding diesel,” given that early indications had pointed to the possibility of about 50m barrels of diesel being made available.

US Inventory Draws and Hurricane Impact

The ING note also points to the latest figures from the US Energy Information Administration, which show that US commercial crude oil inventories fell by 8.56m barrels over the last week. The analysts describe this as the largest weekly decline since February.

They attribute part of the drawdown to hurricane-related disruptions in the Gulf, where offshore production was temporarily shut in due to the storm. As a result, US output is estimated to have decreased by 300k barrels per day on a week-on-week basis.

These supply-side developments in the United States, combined with the geopolitical risk backdrop and the structure of the IEA’s coordinated stock release, are contributing to the current price dynamics in the Brent market described by Patterson and Manthey.

“Oil remains well-supported. A pattern has set in: prices slide early in the session, then claw back most of those losses by the close. As a result, ICE Brent continues to comfortably trade above $100/bbl. Uncertainty in the Middle East and concerns over the sustainability of oil flows through the Strait of Hormuz has the market pricing in a significant risk premium.”

“The longer this pickup in flows continues, the more likely the market will start giving back some of this risk premium. In order to see a full removal, there needs to be some kind of agreement between the US and Iran. This would provide the market with more confidence that stronger oil flows from the region will continue.”

“International Energy Agency members agreed to release the remaining 100m barrels of oil from strategic reserves. It’s part of the initial 400m barrels that members agreed back in March to help with the Persian Gulf supply shortfall. According to the IEA, members have distributed around 330m barrels to date.”

“From the 100m barrels to be released, 20m barrels will be diesel, and will make its way onto the market as soon as possible. The US probably won’t be happy with the scale of the release, particularly regarding diesel. Initial suggestions were that we could see around 50m barrels of diesel released.”

“The latest data from the EIA shows that US commercial crude oil inventories fell by 8.56m barrels over the last week, which is the largest weekly decline since February. Hurricane activity in the Gulf played part in the inventory decline, with offshore production shut in due to the storm. US output is estimated to have fallen by 300k b/d week-on-week.”