Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Brent crude briefly breaches $70 amid Iran attack threats
Ole Hansen
Head of Commodity Strategy
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Key points:
Crude oil markets remain caught in a tug-of-war between bullish near-term demand and rising geopolitical risks on one hand, and macroeconomic headwinds and rising OPEC+ production on the other. In the last hours, Brent crude briefly traded above USD 70 and touched highs last seen in April before drifting lower, as traders continue to digest a mix of conflicting drivers. On the bullish side, seasonal summer demand continues to tighten supplies. With peak travel and air conditioning usage underway, refiners are scrambling to meet surging gasoline and diesel demand, supporting near-term pricing. In their weekly crude and fuel stock report, the US Energy Information Administration reported a bigger-than-expected drop in crude oil inventories, not least due to refineries nationwide processing the most crude since December 2019 in order to meet summer demand However, this short-term tightness is increasingly expected to be offset by rising OPEC+ output into the autumn months, as a group of eight OPEC+ members aggressively restores production in an effort to reclaim market share, and a so far unsuccessful attempt to penalise above-quota producers amid current price strength. The added barrels should, over time, temper price gains while raising concerns about a potential oversupply if demand growth stalls.
Further complicating the picture are economic uncertainties tied to current global trade tensions. The latest wave of tariff threats, despite the prospect of a trade truce reset between the US and China, has rekindled fears of slower global growth, which could weigh on long-term oil demand expectations. In addition, President Trump told journalists that the US, within weeks, will be sending letters to its trading partners in which they will set their terms. Geopolitics, as always, remains a key wildcard that in recent years has rocked prices on several occasions, especially when we are dealing with developments that may disrupt the safe passage and distribution of crude oil and fuel products. The latest surge in Brent above a recent level of resistance around USD 68.50 was triggered by Iranian threats to strike American bases in the Middle East if the nuclear talks collapse and the country is attacked.
The US ordered some staff to depart its embassy in Baghdad due to heightened security risks, while the UK Maritime Trade Operations (UKMTO) issued a rare warning to mariners that higher tensions could affect shipping, including the Strait of Hormuz—the world’s most critical oil transit chokepoint that sees more than 20 million barrels of crude pass through daily. Even a brief disruption there could trigger a sharp price spike, with some analysts warning of a potential move toward USD 100 per barrel in a worst-case scenario.
Israel/Iran conflict remains a volatile undercurrent in the oil market
In addition, the risk of a full-blown war between Israel and Iran remains a persistent and increasingly volatile undercurrent in the oil market. While not an immediate base-case scenario, it is a geopolitical risk the market cannot afford to fully discount. Tensions have steadily escalated over Iran’s nuclear ambitions, and Israel along with the U.S. have long maintained that they will not allow Iran to develop a nuclear weapon—a red line that may drive Israel toward unilateral military action if diplomacy fails.
This risk is further amplified by Israel’s current political climate, where Prime Minister Benjamin Netanyahu’s government faces growing domestic pressure and may see a decisive foreign policy move—such as a strike on Iranian nuclear facilities—as a way to shift the political narrative or consolidate support. On the other side, Iran has vowed to retaliate forcefully if its nuclear infrastructure is attacked, potentially targeting US or Israeli assets directly or through its regional proxy networks.
As markets continue to navigate this web of opposing pressures, volatility remains elevated, and traders will be closely watching diplomatic developments, demand signals, and the next steps from OPEC+ for clearer direction. Overall, its our opinion that a price above USD 70 Brent is unlikely to be sustained into the autumn months once we go past the peak summer demand season, and OPEC+ production increases are being felt, however with the risk of a Middle East disruption once again hanging over the market, fundamental driven short-selling appetite is likely to remain muted for now.Key takeaways from weekly EIA report
EIA's weekly update showed a surprise 3.64 million barrels reduction in crude stockpiles, while gasoline and distillate stocks both rose with refineries processing the most crude since December 2019 to meet summer demand, leading to a drop in exports to an April low at 3.3 million barrels per day. Some concerns about demand arose after implied gasoline demand on a four-week averaged basis stayed at a five-year seasonal low, while distillates, like diesel demand (apart from 2020) fell to an all-time seasonal low.
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