Oil prices continued to rally, breaking above $100/bbl, as the conflict in the Middle East threatens to widen, putting additional supplies at risk
Energy - Oil to move higher in absence of de-escalation
Oil prices surged yesterday, with ICE Brent breaking above $100/bbl for the first time since May. Further escalation in the Persian Gulf and fears of a widening conflict are putting a significant amount of oil supply at risk. Houthi attacks on Saudi vessels in the Red Sea have the potential to widen this conflict, leading to further escalation. President Trump said he will hold Iran responsible for attacks on vessels in the Red Sea, while suggesting a ratcheting up of attacks against Iran. Market fears will be centred around the risk of energy infrastructure in the region being targeted once again.
With little-to-no sign of de-escalation, the market is likely to take the path of least resistance for now. This suggests oil prices will only continue to move higher. The key question is at what price level pressure begins to build on the Trump administration to return to the negotiating table. If Trump’s previous spikes during the early stages of the war are any guide, pressure to de-escalate will likely grow significantly if, and when, Brent nears $120/bbl. For Iran, it’s less about where oil prices are trading (in fact, Iran will want to push prices as high as possible) and more about how long they can endure a collapse in oil revenues amid the US blockade.
The potential supply disruptions facing the market now are larger than at any time during the war. Not only have oil flows through the Strait of Hormuz essentially dried up, but there are clear risks to Saudi oil flows from the Red Sea. In June, Saudi crude oil exports from Yanbu in the Red Sea averaged roughly 4.6m b/d. In addition, we’re seeing disruptions to Kazakh oil flows from the CPC terminal in Russia, amid alleged Ukrainian attacks on tankers. Export volumes from this terminal in recent months have exceeded 1.7m b/d.
There are reports that the Russian government is considering an extension to its export ban on diesel by another month. The ban is set to expire at the end of July. However, continued Ukrainian attacks on Russian refinery infrastructure have tightened the domestic refined products market. Russia is the second-largest exporter of diesel globally, with seaborne exports in excess of 700k b/d in 2025. An extension to the ban will likely continue to provide support to middle distillate cracks, particularly if there’s no let-up in Middle East tensions.
The latest data from Insights Global highlights the growing tightness in the middle distillate market. Gasoil inventories in the ARA region fell by 44kt week-on-week to 1.64mt, 13% below the 5-year average and the lowest levels since 2022. Jet fuel inventories also continued to tighten in the region, falling 64kt WoW to just 514kt- 42% below the 5-year average.
Metals - Gold pressured as oil rally fans inflation fears
Gold fell as escalating tensions in the Middle East pushed energy prices higher, raising concerns that inflation could remain elevated and keep monetary policy restrictive for longer.
Despite ongoing geopolitical risks, gold has struggled to attract meaningful safe-haven demand since the conflict began. Instead, markets have focused on the inflationary implications of higher oil prices and the prospect of higher-for-longer interest rates.
Brent crude climbed back above $100/bbl, lifting Treasury yields and the US dollar and weighing on non-yielding assets like gold. Recent strength in bullion appears driven largely by dip-buying and short covering. This follows the sharp correction from record highs earlier this year. The rebound has since lost momentum.
Gold is hovering around the key $4,000/oz support level. However, elevated oil prices and rising yields are likely to cap any recovery, leaving $4,000/oz as the key near-term level to watch.
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