ING analysts Warren Patterson and Ewa Manthey note that Brent has dropped below $80 per barrel as markets price in a potential short-term US-Iran deal that could reopen the Strait of Hormuz. They caution that gaps between the US and Iran and constrained tanker movements keep the global Oil market tight, with any sustained deal likely to shift focus to 2027 balances and restocking dynamics.

Hormuz risks keep Oil market tight

"Oil prices sold off further yesterday, with ICE Brent settling more than 5% lower, leaving it below $80/bbl. And this downward pressure has continued in early morning trading today. The renewed weakness in the market comes amid growing signs of the US and Iran moving closer to a potential short-term deal, which would see the Strait of Hormuz reopen."

"There are suggestions that a deal could be announced as soon as today, although reports that any agreement would be temporary suggest that the market would be wise not to get too carried away."

"There is still clearly a wide gap between the US and Iran when it comes to management of the Strait of Hormuz, and, of course, the nuclear issue. Therefore, there is the very real risk that any deal unravels fairly quickly, as we saw with the Memorandum of Understanding. For now, tanker movements through the Strait of Hormuz remain highly constrained and so the global oil market continues to tighten."

"The latest US inventory numbers from the American Petroleum Institute show that US crude oil inventories increased by 2.7m barrels over the last week, while the market had been expecting inventories to fall by around 1.5m barrels. Crude oil stocks at Cushing also increased, growing by 2.4m barrels. Meanwhile, for refined products, gasoline stocks increased by 200k barrels, while distillate inventories declined by 1.2m barrels."

"If a deal holds and we see oil flows from the Persian Gulf normalise, market attention will quickly turn to the supply and demand balance in the fourth quarter and 2027. A recovery in Persian Gulf supplies, stronger OPEC+ output following on-paper supply increases through the war, and UAE supply increases all point towards a very comfortable balance sheet in 2027. However, a large part of the expected surplus next year will be absorbed by restocking demand."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)