Oil: Supply risks and structural tightness – Rabobank

Rabobank’s Senior Market Strategist Benjamin Picton highlights rising Oil market stress as geopolitical risks escalate. He notes higher crude prices, widening Brent spreads and concerns over the end of US Strategic Petroleum Reserve releases. Picton also flags potential US export restrictions and ongoing disruptions around the Strait of Hormuz, underscoring persistent tightness in physical Oil markets.

Geopolitics tighten physical oil markets

"While the new economy of AI preoccupied markets for most of yesterday, the much-neglected old economy continued to serve up inconvenient reminders of the importance of real production to 21st century life. Entirely predictable attacks on the Saudi East-West pipeline, reports that damage to the pipeline could take months to repair, and the sense that even if it is repaired it could easily be attacked again ensured that oil markets remained bid. Reports from Iran’s Fars news agency that an oil tanker exploded after colliding with a mine in Omani waters did the same."

"The spread between dated brent and the front future has blown out to the highest levels since mid April, suggesting further tightness in physical markets as refiners scramble to secure feedstock."

"That dynamic won’t be helped by news that the US is approaching the end of its program to release supply from its Strategic Petroleum Reserve. Reserves are sitting at their lowest levels since the 1980s when it was first being filled and there has been an ongoing conversation within oil circles that stock levels may be approaching minimum levels beyond which the structural integrity of the salt caverns where it is stored are threatened."

"The rundown in US stocks and soaring gasoline prices has invigorated speculation that the administration could seek to impose export bans on certain oil products ahead of the midterm elections in November – a prospect that Secretary of the Interior Doug Burgum hosed down by saying that it wouldn’t help to lower prices."