| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 100.88 | -4.40 | 95.07 | 90.87 | 88.51 |
| US WTI ($/b) | 89.45 | -3.15 | 88.58 | 86.49 | 82.83 |
| ICE Gasoil ($/MT) | 1,381.25 | -63.75 | 1,359.16 | 1,202.57 | 1,090.42 |
| Jet CIF NWE ($/MT) | 1,442.35 | -15.60 | 1,379.63 | 1,245.00 | 1,181.00 |
Brent has remained relatively resilient over the past week, trading just below 102 \$/b this morning despite ongoing concerns around Middle East energy supplies. The dominant development has been the announcement by the G7 of a coordinated release of strategic oil reserves, overseen by the IEA. The headline figure is 100 million barrels over 40 days, with a substantial diesel component expected to be front loaded during the first half of the programme. The move appears to have been driven primarily by concerns over persistently high diesel prices, which have become an increasing political issue, particularly in the United States. Perhaps equally important for the market was President Trump's confirmation that a US diesel export ban is no longer being considered. Such a ban would have significantly disrupted European diesel supplies and its removal has helped ease some of the extreme pressure seen in refined product markets. Several reports suggest the diesel component could be half of the total 100m. This seems to originate from a proposal made by French officials, but it is not clear whether such a volume was agreed or whether it is technically possible to provide such volumes of diesel over the timeframe envisaged. To put this in context, 50m barrels of diesel released over 40 days, is 1.25 mb/d which compares to European consumption of around 6mb/d. Nevertheless, even if reports prove correct that around half of the release could be diesel, the volumes would provide only temporary relief rather than a lasting solution to the underlying supply challenges.
In the Middle East, reports last week were that energy flows appear to be recovering gradually. Saudi Arabia has brought the East West pipeline back into operation and is continuing to increase throughput, helping to restore crude exports that had been disrupted following the attack on the pipeline. Reports also suggest that crude flows through the Strait of Hormuz have increased and may be approaching pre conflict levels. However, there remains significant uncertainty around these estimates as many vessels are reportedly transiting at night with tracking systems disabled, making independent verification difficult. Furthermore, while crude supplies have improved, shipping conditions remain challenging. The threat to Saudi cargoes passing through the Bab al-Mandab Strait persists, forcing some exports onto longer and more complex routes and contributing to tanker freight rates reaching fresh record highs. There continue to be sporadic reports of vessel attacks and, while the situation appears to have improved for crude oil, refined product markets remain considerably tighter as the situation for those is more challenging.
Diplomatic contacts between the United States and Iran are continuing, although there has been little sign of a breakthrough and the two sides remain far apart on key issues. The US has deployed additional forces to the region, although this may partly reflect troop rotations rather than a significant military build up. However, with fresh forces in place once the US mid-term elections are over, Trump might take further action if Iran has agreed to a deal to reopen the Strait. At the same time, attention is increasingly turning to developments in Yemen, where government forces have launched a new campaign against Houthi rebels. Given Saudi Arabia's support for the Yemeni government and its forces, there is a risk that any escalation could lead to renewed attacks on Saudi energy infrastructure, including the East West pipeline.
Against this backdrop, recent price movements have been more mixed than headlines suggest. Part of the decline in Brent reflects the expiry of the November contract and the transition to December futures. December, which is now the front contract, is actually higher than it was at the end of last month when it briefly fell to 95 \$/b. Refined products have seen a more pronounced correction, with gasoil futures, which drive jet and diesel prices, falling to their lowest levels since late August. However, with gasoil at around 180 \$/b, diesel and jet fuel remain exceptionally expensive by historical standards. Further price weakness is possible if confidence grows that reserve release volumes will be delivered as promised, but as the programme is only a temporary measure, the market remains vulnerable to renewed supply disruptions and geopolitical escalation.
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