Key Moments
- ICE Brent settled 8.7% lower, dropping below $95/bbl as markets reacted to the Democrats’ US midterm election sweep.
- ING analysts see the war-related risk premium in oil prices eroding, with fundamentals softening and timespreads weakening.
- US distillate inventories fell by 3.57m barrels, taking stocks below 100m barrels for the first time since 2003, despite higher refinery utilization.
Election Outcome Triggers Sharp Brent Selloff
ING analysts Warren Patterson and Ewa Manthey report that ICE Brent futures have come under heavy pressure following the Democrats’ victory in both the US House and Senate in the midterm elections. According to their analysis, the political outcome has prompted traders to factor in the possibility of a faster resolution to the war in Iran and a diminishing risk premium embedded in crude prices.
They highlight that ICE Brent settled 8.7% lower in the latest session, closing below $95 per barrel, with additional selling continuing in early morning trading. The analysts describe the recent downward move as sharp and argue that the pace of the decline appears excessive in light of underlying market dynamics.
Risk Premium and Market Structure Under Pressure
The analysts state that, with no fresh escalation in the conflict, the crude market is likely to gradually relinquish the risk premium that built up in recent months. They note that oil shipments from the Persian Gulf “are holding up well,” reducing the justification for elevated geopolitical pricing.
They add that this premium could erode more rapidly if “there’s some sort of agreement between the US and Iran.” At the same time, they see the broader market balance turning more comfortable, pointing to “weakening in the physical market as well as timespreads” as evidence that fundamentals are becoming softer.
US Inventory Data Paints Mixed Fundamental Picture
Despite the retreat in prices and softer sentiment, the latest data from the US Energy Information Administration (EIA) underscore ongoing tightness in key product markets. Patterson and Manthey note that “US commercial crude oil inventories fell by 865k barrels over the last week.” When strategic reserve releases are included, “total crude, inventories fell by 1.26m barrels.”
Refined products showed even stronger draws. They write: “Despite refineries increasing their utilisation rates by 1.7 percentage points over the week to 94.5%, distillate fuel oil inventories still fell by 3.57m barrels. This took total distillate stocks below 100m barrels for the first time since 2003. Gasoline inventories also edged lower by 222k barrels.”
| Indicator | Weekly Change | Additional Detail |
|---|---|---|
| US commercial crude oil inventories | -865k barrels | Excludes strategic reserves |
| Total crude inventories (including SPR releases) | -1.26m barrels | Includes strategic reserve releases |
| Refinery utilization rate | +1.7 percentage points | Reaches 94.5% |
| Distillate fuel oil inventories | -3.57m barrels | Drops below 100m barrels for first time since 2003 |
| Gasoline inventories | -222k barrels | Modest decline |
Analysts Question Extent of Price Decline
Patterson and Manthey caution that the market outlook remains highly unclear: “How all this plays out is still highly uncertain. Therefore, the degree and speed to which the oil market has sold off seems to be overdone.” They also remark on the political dimension of the conflict, stating: “One would think Trump might want to come away with some accomplishments from this war.”
Their overall assessment is that while geopolitical risk premia are being unwound and market structure is softening, the underlying product tightness and inventory draws suggest the recent slump in Brent may have gone too far, too fast.
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