Brent briefly dipped back into the infamous $60/bbl handle on Monday, only to rebound sharply over $75/bbl as sentiment took a volte-face on fears of a potential oil supply disruption stemming from the regional escalation of the war in the Middle East. The concerns pushed Brent call option volumes to record highs on Wednesday, driven by a surge in $100 calls. Yet, as alarming as the widening of the conflict has been on humanitarian grounds, we have yet to watch it have any immediate impact on physical oil flow out of the Persian Gulf. If anything, the oil market remains plagued with an oversupply problem, which was only worsened by the EIA reporting a 3.9mb build in US crude oil inventories in the week ending 27 Sep. In a horrific scenario, should Israel cut out Iranian oil supply, OPEC+ appears to have the capacity to absorb the shock, with Saudi Arabia alone capable of adding up to 3mb/d, well beyond Iran’s 2024 projected exports of 1.7mb/d. Brent’s brief foray into $69/bbl appears to be well-draped by this newfound risk premia at present, but we may see bearish sentiment unravel again.
