| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 114.30 | 4.75 | 101.47 | 92.32 | 91.89 |
| US WTI ($/b) | 100.77 | -2.89 | 93.30 | 86.42 | 85.76 |
| ICE Gasoil ($/MT) | 1,482.75 | 33.75 | 1,418.33 | 1,255.46 | 1,151.88 |
| Jet CIF NWE ($/MT) | 1,580.17 | 43.11 | 1,465.74 | 1,297.02 | 1,244.92 |
Brent traded in a wide range last week, briefly falling to around 106 \$/b before rallying as high as 117.50 \$/b, its highest level since 30th April. For several months much of the volatility in energy markets had been concentrated in refined products such as diesel and jet fuel, but more recently the strength has spread increasingly into crude. Brent briefly sold off last Tuesday following reports that Iran and the US were close to reaching an agreement but quickly recovered when those reports proved unfounded. More broadly, the key influence on crude prices has been uncertainty over how much oil is actually moving through the Strait of Hormuz. Earlier reports that flows had recovered towards pre-war levels had helped keep Brent relatively soft, but the increase in Iranian attacks on shipping in recent weeks, including vessels being hit and at least one sinking, has made clear that conditions remain far from normal. Importantly, positioning data does not suggest the rally is simply being driven by speculative buying, with speculative positions in Brent and WTI not particularly elevated. This points instead towards genuine tightness in the physical market, although Brent has eased slightly this morning to around 115 \$/b.
The options market also provides an interesting indication of how traders are assessing the risks. Short dated Brent volatility has risen into the low 50% area, reflecting increased uncertainty, but remains well below the levels seen in July and the 100% plus readings reached at the beginning of the war. The volatility surface does, however, show particularly strong demand for high strike, short dated call options, suggesting market participants are willing to pay a significant premium for protection against another sharp move higher in the near term. Further out, options expiring next summer are trading at volatility of around 40%, with a much smaller premium for high strike calls and pricing closer to more typical levels. Interestingly, short dated gasoil option volatility, which is particularly relevant for diesel and jet fuel pricing, is higher than Brent, but longer dated volatility is slightly lower and there is less of a premium for upside calls. This may partly reflect more limited hedging activity from refined product consumers compared with participants in the crude market.
Attention is now increasingly turning towards the US midterm elections and whether they could provide a catalyst for either diplomatic progress or further escalation. Despite months of proposals and indirect discussions, the public positions of Iran and the US appear to have moved very little. It is possible that negotiations behind closed doors have narrowed some of the differences, but there is little public evidence to confirm this. President Trump has again characterised the decision facing the US in stark terms, suggesting the choice is between reaching an agreement and "finishing it off". This leaves open the possibility of an eleventh hour diplomatic breakthrough ahead of the elections, but equally the risk of renewed military escalation remains significant. For now, that uncertainty, combined with continued disruption around the Strait of Hormuz, is keeping a substantial geopolitical risk premium embedded in crude prices.
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