Oil supplies from the Persian Gulf have been improving, yet ICE Brent has stayed supported above $100/bbl after earlier trading down towards $97/bbl, as shipping attacks continue to keep regional supply risks elevated. The market has been balancing firmer physical flows against persistent threats to supply chains. With disruption risk still present, prices have struggled to move and hold lower levels.
Within refined products, middle distillates have weakened at the front of the curve. The ICE gasoil crack has been trading around $73/bbl, down from a little more than $90/bbl in September, helped by the prospect of diesel releases from European strategic reserves and a reduced risk of a US diesel export ban. Further out, cracks remain better supported, reflecting expectations that any releases would be frontloaded and temporary, while underlying tightness would persist without a normalisation in Persian Gulf and Russian diesel flows.
Brent Market Resilience Amid Geopolitical Risks
Brent crude is holding firm above the $100 per barrel mark due to persistent threats to shipping in key regional choke points. Given that roughly 20% of global petroleum liquids pass through the Strait of Hormuz, we advise derivative traders to buy on dips near the $97 support level. Volatility is highly likely to remain elevated in the coming weeks as geopolitical risks continue to offset improving physical flows.
Divergence in Middle Distillate Cracks and Trading Strategies
We are seeing a stark divergence in the middle distillate market, where front-month gasoil cracks have dropped to around $73 a barrel from September highs of over $90. This temporary weakness is driven by emergency diesel releases in Europe, but the longer-dated contracts remain highly supported. Derivative traders should consider calendar spreads, buying outer-month diesel contracts while shorting the front month to capitalize on this temporary structural distortion.
A sustainable drop in energy prices requires a complete normalization of Russian and Persian Gulf shipping routes, which is highly improbable in the near term. Recent maritime tracking data shows that commercial ship transits through high-risk regional corridors remain depressed by over 45% compared to historical averages, keeping risk premiums firmly priced in. We recommend maintaining long call options to hedge against sudden supply disruptions that could easily spike prices well past current levels.
