ING analysts Warren Patterson and Ewa Manthey highlight that Oil is trading on expectations of resumed Persian Gulf flows, which they see as overly optimistic given stalled US-Iran talks. They stress that falling inventories in Europe and Singapore, combined with stronger third-quarter demand, could intensify market tightness and require higher prices to trigger demand destruction, particularly via refined products.

Tightening stocks raise price risks

"While there are few signs of progress in US-Iran talks, the oil market continues to trade on expectations of an imminent deal that would resume flows through the Strait of Hormuz. This seems overly optimistic as Hezbollah rejects the Lebanon-Israel ceasefire. This development will not help US-Iran negotiations."

"Sizeable inventories in the lead-up to the war have provided a buffer for the market. This buffer is shrinking with every passing day. With the seasonally stronger summer still ahead of us, we could see demand grow by more than 3m b/d quarter-on-quarter in the third quarter."

"The pace of inventory declines will only intensify through the July-September period. This will leave the market increasingly vulnerable and would require significantly higher prices to ensure demand destruction through the summer. As we’ve seen since the war began, demand destruction does not need to come solely from higher crude oil prices -- a lot of damage can be done by higher refined product prices."

"In Europe, refined product inventories in the ARA region fell by 17kt week-on-week to 4.4mt, according to Insights Global. Gasoline and jet fuel saw the largest declines, with stocks falling 81kt and 49kt, respectively. The drop in jet fuel inventories left stock levels at their lowest since 2020."

"Aligned with the inventory-tightening narrative, Singapore oil product stocks fell by a significant 6.14m barrels over the last week. This is the largest weekly decline since December 2024. It also leaves total stocks at their lowest level since October 2024."

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