ING Says Oil Selloff Overdone, Prices Near $70
ING Research argues that the recent oil price collapse to near $70 is overdone, citing potential peace talks and supply risks from Iran tensions.
Global oil prices have tumbled back to pre-war levels, trading near $70 per barrel as a potential US-Iran peace deal removes war risk premiums. However, ING Research suggests the selloff is overdone, with Brent crude for August delivery rising 0.74% to $72.54/bbl on Monday amid escalating military tensions in the Strait of Hormuz. The recent decline has been sharp, with Brent falling from over $80/bbl in April, driven by expectations of increased Iranian supply if sanctions are lifted. Iran currently holds around 1.5 million barrels per day of spare capacity, which could quickly enter the market, but the timing remains uncertain. The Brent-WTI spread has narrowed to around $4/bbl, reflecting weaker global demand relative to US supply. Meanwhile, US Strategic Petroleum Reserve levels remain near 370 million barrels, down from 638 million in 2020, limiting the government's ability to intervene in case of supply disruptions.
For energy traders, the sharp decline reflects a rapid repricing of geopolitical risk, but ING's view highlights that the market may have overshot. The Strait of Hormuz remains a critical chokepoint for global oil shipments, and any disruption could quickly reverse the recent losses. Crack spreads—the difference between crude oil and refined product prices—have weakened, indicating softer demand for gasoline and diesel, particularly in China, where economic recovery has been uneven. China's marginal demand growth has slowed, with crude imports down 8% year-on-year in May, adding downward pressure on prices. However, OPEC+ coordination remains intact, with Saudi Arabia and Russia maintaining production cuts of 2.2 million bpd through June, though the group is set to discuss output policy in early July. The market is currently in backwardation, with near-term futures trading above later contracts, signaling tight supply, but the contango structure in some products suggests oversupply in certain regions. Traders can check NowPrice's fuel page for real-time pricing on Brent and WTI to gauge current market sentiment.
Looking ahead, the focus will be on US-Iran negotiations and any concrete progress toward a deal. Additionally, OPEC+ supply decisions and upcoming US inventory data will provide further direction. If tensions escalate, oil prices could spike, but a sustained peace deal might keep prices capped near current levels. The US Energy Information Administration's weekly inventory report, due Wednesday, is expected to show a draw of 1.5 million barrels, which could provide short-term support. Any signs of renewed geopolitical risk, such as Iranian seizures of tankers in the Strait of Hormuz, could trigger a sharp rebound. Conversely, a breakthrough in US-Iran talks could push Brent below $70/bbl, testing support levels not seen since December 2021.