ING analysts Warren Patterson and Ewa Manthey note that Oil prices remain closely linked to Middle East developments, with flows through the Strait of Hormuz still disrupted. They highlight continued draws in US crude inventories and thinning global stocks, arguing this leaves upside risk to Oil prices into the third quarter as any recovery in regional supply is expected to be slow and gradual.

Middle East risks and US draws

"Re-escalation in the Persian Gulf pushed oil prices higher yesterday, with fresh attacks once again casting doubt over a resumption of energy flows through the Strait of Hormuz. There also appear to be mixed messages about the progress in negotiations between the US and Iran."

"Every day that passes without a resumption of oil flows leaves the market increasingly vulnerable. This increases the pressure to strike a deal."

"However, even if we see an imminent restart of oil flows through the Strait of Hormuz, the recovery will be slow and gradual. This suggests inventories are likely to continue to tighten into the third quarter, leaving upside risk to prices."

"Weekly inventory numbers from the EIA show that US commercial crude oil inventories fell by 7.97m barrels over the last week. This leaves the total inventory draw over the last month and a half at 32m barrels."

"While inventories do fall seasonally as refiners ramp up operating rates, the pace of decline has been faster than usual. When taking into consideration releases from the strategic petroleum reserve, total crude inventories fell by 15.97m barrels over the last week."

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