| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 104.98 | 6.02 | 72.60 | 67.73 | 67.78 |
| US WTI ($/b) | 99.40 | 4.63 | 67.66 | 63.29 | 63.97 |
| ICE Gasoil ($/MT) | 1,175.75 | 9.75 | 771.10 | 728.78 | 710.19 |
| Jet CIF NWE ($/MT) | 1,529.89 | 246.43 | 857.18 | 787.98 | 754.44 |
There has been significant volatility in oil markets over the past week as developments in the Middle East continue to evolve rapidly, Brent set a high near 120 \$/b.
Early in the week Brent rallied sharply, briefly approaching 120 \$/b, the highest level since 2022, as it became increasingly concerning that the conflict in the Middle East was likely to drag on. Markets initially reacted to the growing risk that disruption to oil flows from the Gulf could become prolonged. However, sentiment shifted quickly. Later in the day prices softened significantly after comments from Trump suggesting the war was “pretty much” over. Brent subsequently fell sharply and on Tuesday traded close to 81 \$/b after the US Energy Secretary posted that a tanker had been escorted through the Strait of Hormuz, a statement that was later deleted, adding to the confusion surrounding the situation. Further easing in prices during the first half of the week was driven by the announcement of a coordinated reserve release from the International Energy Agency. Member states agreed to release around 400 million barrels of strategic reserves in an attempt to calm markets and offset the immediate supply disruption. While this helped stabilise prices temporarily, it became increasingly clear later in the week that the underlying risks to supply had not diminished.
Concern began to rebuild as attacks were reported on vessels attempting to pass through the Strait of Hormuz, messaging from Washington regarding the objectives of the conflict became increasingly unclear, and missile and drone strikes on Gulf states continued to damage oil infrastructure. Several producers, including Saudi Arabia, have already been forced to cut output as a result of the disruption.
A particularly worrying development has been the reported use by Iran of naval drones capable of targeting vessels and infrastructure across the Persian Gulf. This raises the prospect that the region could become extremely difficult to secure, potentially replicating the way Ukrainian naval drones were able to disrupt Russian naval activity in the Black Sea. If this technology proves effective, it could complicate efforts by the US and its allies to guarantee safe shipping routes. Over the weekend attention shifted toward Iran’s Kharg Island export terminal, which handles the majority of the country’s crude exports. Trump stated that military facilities on the island had been “obliterated” and raised the possibility that the oil terminal itself could also be destroyed. Such a move would effectively shut down most Iranian exports for an extended period. However, this would almost certainly provoke a response from Iran, potentially involving intensified drone attacks on oil infrastructure across other Gulf producers, many of which are already experiencing disruption.
This shifts the focus of market concern away from simply reopening the Strait of Hormuz toward a more complex challenge: repairing damaged infrastructure across the region. Even if shipping routes reopen, restoring full production capacity could take considerably longer.
There are, however, a few tentative signs of possible progress. Trump has indicated that Iran has proposed a potential deal, although he suggested the terms were “not good enough yet”. At the same time, several countries are negotiating directly with Iran to secure safe passage for vessels through the Strait, with India reportedly making some progress. Nonetheless, missile and drone strikes continue, including attacks on the UAE port of Fujairah, a key export hub located south of the Strait and therefore normally outside the immediate chokepoint.
Looking ahead, upward pressure on prices is likely to persist as long as there is no clear resolution to the conflict. The level of disruption currently being experienced in oil markets is unprecedented in modern times and the reserve release announced by the IEA is only a temporary measure. At current disruption levels it is likely to cover only two to three weeks of current levels of lost supply.
After the sharp volatility earlier in the week Brent has now moved back above 100 \$/b and appears to be stabilising at that level. If infrastructure damage continues and supply losses persist, prices could build further from here. Attention is also turning to refined products. Sinopec, China’s largest refiner, has announced that it will cut refinery throughput by around 10% due to difficulties securing sufficient crude supplies. Diesel and jet fuel markets are already experiencing particularly strong upward pressure. The Middle East had become a major supplier of these refined products to global markets, so any prolonged disruption to crude flows from the region will increasingly be felt across downstream fuel markets as well.
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