Recent geopolitical tensions (drone attacks in Iraq), combined with a constrained supply (low distillate inventories in Europe, declining US oil stocks), have supported oil prices. Brent is trading around $70, while WTI is at $67.30. 📊 Latest Developments Tensions in Iraq/Kurdistan Drone attacks have reduced production by approximately 140,000 barrels per day in northern Iraq, supporting prices. US Oil Stocks US inventories dropped by 3.9 million barrels, a significant drawdown compared to expectations. Distillate Tightness in Europe Diesel levels are at their lowest since January 2024 amid strong summer demand and heavy refining activity. OPEC+ Gradual Supply Return The alliance plans to reintroduce around 2.2 million barrels per day by September (about 550,000 b/d increase in August/September). Analyst Outlook Goldman Sachs: revised Brent average price forecast to $66 for H2 2025, with a possible rebound up to $90 in case of an Iran-related shock. Reuters/IOM Poll: analysts remain optimistic short term (Brent > $67), but cautious medium term due to increasing production. Context on Distillates Shortage Distillates, including diesel and heating oil, are crucial refined petroleum products widely used in transportation, industry, and heating. The current shortage in Europe is driven by several converging factors: Strong Seasonal Demand: The summer driving season in Europe typically boosts diesel consumption, especially with increased freight and logistics activity. Additionally, some regions still rely on heating oil for power generation during transitional seasons. Refinery Maintenance and Outages: Many European refineries undergo scheduled maintenance in summer months, reducing output capacity for distillates temporarily. Unexpected technical issues or outages can exacerbate the tightness. Shift in Refinery Production: Some refineries have rebalanced their output to produce more gasoline or jet fuel to meet shifting demand patterns post-pandemic, sometimes at the expense of distillates. Supply Chain Disruptions: Logistic bottlenecks and higher transportation costs have hampered efficient distribution of distillates across European markets, further tightening local supply. Regulatory and Environmental Constraints: Stricter fuel quality regulations and the transition towards greener fuels sometimes reduce available volume or increase production costs, impacting supply. Market Implications:The tight distillate supply tends to push prices higher, affecting diesel fuel costs across Europe. This, in turn, can increase transportation and industrial expenses, potentially feeding into inflationary pressures. The shortage also incentivizes traders and refiners to optimize supply chains and increase imports where possible. ✅ Analysis and Recommendation Short term: Price rises likely due to geopolitical tensions and low inventories. Tactical trading opportunities on Brent/WTI contracts. Medium term: OPEC+ supply ramp-up should moderate price increases, limiting further upside potential. Recommended Strategy: Bullish if geopolitical tensions persist or worsen (e.g., Iran/Iraq alignment). Neutral to cautious if OPEC+ supply increases and demand softens (risk of oversupply). Options strategy: use put spreads to hedge against a potential price drop, as suggested by Goldman Sachs.
