| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 90.61 | 1.39 | 86.71 | 95.39 | 80.49 |
| US WTI ($/b) | 84.03 | 0.80 | 84.06 | 90.52 | 75.60 |
| ICE Gasoil ($/MT) | 1,208.25 | 6.75 | 1,045.49 | 1,145.31 | 923.12 |
| Jet CIF NWE ($/MT) | 1,263.48 | 7.65 | 1,110.35 | 1,280.81 | 1,017.48 |
Brent traded over 100 \$/b last week on Thursday and Friday, for the first time since May, but is trading back down around 90 \$/b this morning.
The rally last week driving Brent back over 100 \$/b was owed to the combination of the continuing hostilities between the US and Iran and the Iran backed Houthis rebels in Yemen attacking vessels carrying Saudi cargoes in the Red Sea. The Houthis have largely kept out of the war until now and this is a potentially dramatic development for the oil market as 7 mb/d, just under 7% of world oil supply, of Saudi Crude is now being exported via a pipeline to the Red Sea, which could be cut off by the Houthis from exiting through the southern entrance to the Red Sea. Theoretically the ships could go north through the Suez Canal, but that is an incredibly long way to Asian markets and the largest crude carriers are too big for the Suez Canal in any case. Any disruption could also impact the flow of refined products like diesel and jet fuel from Asian refineries to Europe which would have to be rerouted via the west coast of Africa. This happened after Saudi Arabia launched a strike on an airport in Yemen to prevent an Iranian plane from landing there. Since then, there has been a continued exchange of fire between the two sides and the Saudi backed government in Yemen has now been pulled into the conflict. Despite this development Brent fell back to 96 \$/b on Friday as flows of oil out of the Red Sea appear to have continued for now and has fallen further this morning as the US ceased its action against Iran on Friday evening. There are reports that Trump was presented with options for continued attacks but opted to hold fire after an Omani delegation arrived in Tehran “for talks on a new arrangement to reopen the Strait of Hormuz.”
The question is now how sustainable the decline in prices is. Iran and Oman’s deputy foreign ministers met in Tehran over the weekend to discuss maritime navigation in the Strait of Hormuz. The talks have been reported to be “constructive” and that “some progress was made,” though no details have emerged. However, this morning Iran was reported to have intercepted six ships that were attempting to pass through the Strait in Omani waters with their positioning systems turned off. This underlines the issue that the Strait is still closed, and we don’t yet know whether progress between Iran and Oman will be sufficient to satisfy Trump or whether continued disruption of the Strait by Iran will lead to a resumption of US action. Trump has been talking about the possibility of a significant attack on Iran, which he might come back to. There is also the risk of conflicts escalating elsewhere in the region. On top of the Saudi-Houthi hostilities, there has been an Israeli incursion into Syria in addition to friction between Israelis and Palestinians in the West Bank.
With the Strait of Hormuz effectively closed and the Red Sea route also under pressure, it might be difficult for the market to fall much further unless there are signs of genuine progress in talks between Iran and Oman that also satisfies the US. If there is a resumption in serious US-Iran talks, Brent could fall back towards the low 80 \$/b range. The 50-day average lies at 86.70 \$/b and is the first target on the downside, the 100-day average is at 95 \$/b. Gasoil remains elevated around 1,200 \$/MT or 160 \$/b.
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