Oil futures: Brent soars to around $119/b on supply crunch, tanker seizure reports

27 May 2022

Quantum Commodity Intelligence - Crude oil futures Friday maintained the firm upwards trend, extending the week's strong gains as prices hit the highest levels since March amid growing concerns of a supply crunch in the second half of the year, while reports that two Greek vessels had been seized by Iranian forces added to the upwards momentum. 

Front-month July ICE Brent futures were trading at $118.85/barrel (1655 GMT), compared to Thursday's settle of $117.40/b.

At the same time, July NYMEX WTI was trading $114.69/b, versus Thursday's settle of $114.09/b.

Brent led the way this week with gains of around 6%, while WTI was up nearly 4.5%.

Reports late Friday that two Greek oil tankers had been boarded in international waters by the Iranian military in what is possible retaliatory action lifted Brent to three-month highs, as geopolitical tensions were further heightened. 

Prices were already in an uptrend for most of the day as a potential supply crunch underpinned sentiment. 

"Crude oil prices extended recent gains as robust demand amid supply shortages continues to tighten the market," said ANZ commodity strategist Daniel Hynes.

Hynes further noted that despite the EU struggling to reach an agreement on sanctions against Russia's oil, supplies from what was previously the top producer within the OPEC+ group are set to tighten.

Hungary is said to be looking for an additional three to four years to transition away from Russian oil and while concessions are likely to be offered at next week's EU showdown, traders are expecting a broader range of sanctions that will make lifting Russian oil even more difficult.

"The EU is struggling to get Hungary on board for the required unanimous support needed for a ban on Russian oil. It still seems possible for the ban to get pushed through, but Hungary will need to have favorable terms," said Ed Moya, senior market analyst at brokerage Oanda.

Most of the talk centred on Hungary being given an extended waiver on Russian pipeline oil, although the EU is said to be reluctant to offer a multi-year waiver to get the deal through. 

Tightness in distillates and gasoline continues to drive markets, while a ban on Russian oil is likely to leave diesel supplies perilously short. 

Spot distillate cracks in Europe jumped to a two-week high on Thursday, while gasoline cracks hit a fresh record as the EU pushed on with its embargo and US gasoline imports continue to grow.

Gasoline cracks gained nearly $2/b to $46/b and diesel cracks we up $3/b to $42/b, although cracks for naphtha, LPG and fuel oil all retreated by the European close Thursday.

Meanwhile, OPEC+ is set to stick to the existing oil production deal agreed to last year at its meeting on June 2 and raise July output targets by a modest 432,000 barrels per day, according to an informal Reuters poll of six OPEC+ delegates.