ICE Brent remained below $80/bbl as traders weighed the possibility of a US–Iran deal that could reopen energy flows through the Strait of Hormuz, after Iran said it had agreed with Oman on new shipping arrangements and that a joint statement was being prepared. Attention stayed on whether talks progress enough to allow disrupted flows to resume, while refined product markets were supported by tightness linked to disruption in the Middle East and Russia’s diesel export ban.
In the US, the EIA reported commercial crude inventories rose by 2.48m barrels, while the SPR fell by 2.84m barrels, leaving total crude stocks down 362k barrels. Crude imports increased by 515k b/d week-on-week and exports rose by 218k b/d. Gasoline inventories declined by 1.64m barrels and distillate stocks fell by 3.47m barrels, with distillate exports up 98k b/d WoW to a record 1.88m b/d, tightening the domestic market.
Brent Crude Dynamics and Geopolitical Risks
We see ICE Brent crude struggling to break above the $80 per barrel mark as negotiations between the US, Iran, and Oman spark hopes for smoother shipping flows through the Strait of Hormuz. Derivative traders should prepare for sudden price drops if a formal deal is signed, especially since this vital passage historically carries about 20% of the world’s liquid petroleum consumption. However, we advise against shorting crude too aggressively just yet, as geopolitical headlines in the Middle East remain highly unpredictable.
Refined Product Tightness and Trading Strategies
While raw crude prices remain capped, we see a completely different story in the refined products space where a severe supply squeeze is unfolding. Recent data highlights this divergence, with US gasoline and distillate inventories plunging by 1.64 million and 3.47 million barrels respectively in a single week. To capitalize on this, we recommend traders look into long positions on heating oil or diesel derivatives, as global supply lines remain severely clogged.
US distillate exports have recently surged to a record high of 1.88 million barrels per day to fill the gap left by Russia’s diesel export bans and shipping bottlenecks. Historically, distillate crack spreads tend to widen significantly during these periods of high export demand and low domestic inventories. We believe trading the crack spread—buying distillate futures while selling crude futures—offers the most attractive risk-reward ratio in the coming weeks.
