ING’s Warren Patterson and Ewa Manthey note that Brent has sold off sharply as US–Iran strikes pause and President Trump signals a “good chance” of a deal. They stress that flows through the Strait of Hormuz and Bab el-Mandeb, as well as Black Sea exports, remain critical. Persistent geopolitical risks mean Oil is likely to retain a significant risk premium.

Geopolitics cap downside despite sharp selloff

"The oil market continues to sell off heavily, with the US and Iran continuing to hold off on further strikes, while President Trump said that talks are happening and that there is a “good chance” of a deal, although he warned that strikes would resume in the event a deal fails to materialise."

"However, we have been in this position multiple times before, and so the market may be getting a bit ahead of itself."

"If this move lower is to be sustained, we will need to see a recovery in flows through the strait."

"Furthermore, even in the event of a deal, one would expect that the market will need to continue to price in a large risk premium, given that recent events have demonstrated how quickly a deal can unravel."

"A resumption in oil flows from the Black Sea would also add some downward pressure on the market, with oil loadings at both the CPC terminal and the Sheskharis terminal in Russia resuming."

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