Over the past three months in Q2, we’ve been focused on the anticipated strength of Q3, which begins on Monday. Currently, the outlook for Q3 shows mixed signals. For instance, there have been no significant drawdowns in U.S. crude oil inventories, and gasoline demand has not been particularly impressive. However, jet fuel demand is very strong, creating a strong market pocket.
Looking ahead, there are positive indicators suggesting we might see confirmation of improving conditions, leading to upward pressure on prices. There is potential to test the $90 mark, given the current fundamentals and market structure. As we progress through Q3, discussions will naturally shift towards Q4 and Q1. Notably, Q1, 2025 typically lacks seasonal support for high oil prices and is usually the weakest quarter. We’re always looking one quarter or half a year ahead, and it’s essential to consider this forward-looking perspective. Key factors to watch in the coming months include OPEC’s production decisions and U.S. oil production trends. U.S. production has been flat for the past nine months, making it a critical factor to monitor. Any changes in this trend could significantly impact the market. Official numbers for April will be released this afternoon, providing more clarity on U.S. production trends.
It’s clear that while there is some geopolitical risk premium affecting oil prices, its impact is currently smaller compared to earlier in the year. There is a slight increase in the risk premium within oil prices, particularly in Brent crude. However, this increase is not as significant as it was six months ago. Unlike earlier in the year, Europe currently has ample diesel and gasoline inventories, indicating a different market situation now. The diesel crack spread doesn’t show much indication of a risk premium, suggesting stable market conditions for diesel.
The difference between the current dated Brent price and the first position in the futures market (TfL) is showing a bullish structure. The prompt spread, which is the difference between the first and second contract, also indicates a relatively bullish market. This suggests that the current market structure isn’t primarily driven by a risk premium. Geopolitical risks, like potential standoffs involving Iran, are being considered but are currently priced into the market to a lesser extent than before. The hope for a more moderate Iranian president might contribute to cooling geopolitical tensions.
Overall, the current market structure and inventories suggest a more stable environment, with the risk
premium being a lesser factor than it was a few months ago.