Energy – Speculators Jump Into Oil Amid Renewed Disruptions
broke above US$90/bbl this morning with no let-up in the escalation in the Persian Gulf. The US and Iran continue to exchange strikes, which are proving to be deadly for both sides. If this escalation goes unchecked, we could return to an environment of wide-scale attacks across the Persian Gulf. Vessel flows have essentially ground to a halt. LSEG data show that only 2 outbound visible oil tankers transited the Strait of Hormuz, with no inbound traffic. Flows are essentially back to where they were before the Memorandum of Understanding (MoU).
Meanwhile, reports are that Iran told the Houthis in Yemen to essentially shut the Bab el-Mandeb Strait if the US attacks Iranian power infrastructure. This strait is important for vessel movements through the Red Sea. The Saudis have relied heavily on this route since the war began to bypass the Strait of Hormuz. If closure occurs, tankers would have to enter and exit the Red Sea via the Suez Canal. This would make Saudi oil exports to Asia a lengthier and costlier affair.
The issue for the oil market is that SPR releases, which have offered some relief during the war, are set to cease around the end of this month. This leaves the market relatively more vulnerable. Clearly, there’s always the potential for SPRs to be tapped further. The US may be willing to do so, given that the 172m barrels it’s in the process of releasing are structured as an exchange rather than a pure release. So, these barrels will be returned to the SPR plus interest in the form of additional supply.
Given the market moves in recent weeks, it’s unsurprising to see speculators increase their net long in ICE Brent. They bought 114,752 lots over the last reporting week, leaving them with a net long of 169,839 lots as of last Tuesday. The move was driven predominantly by fresh longs entering the market. Meanwhile, speculators also increased their net long in ICE gasoil by 2,389 lots over the week to 71,875 lots. Given the recent move in the gasoil market, it’s surprising that we have not seen more aggressive speculative buying, though this may be more evident in the next Commitment of Traders report.
The European gas market is seeing relatively more strength than oil this morning, with up more than 5% and breaking above EUR60/MWh. The gas market is more vulnerable to these supply disruptions from the Middle East. The post‑MoU rebound in vessel traffic made one thing clear: LNG flows lagged the recovery. If this latest flare‑up follows the same pattern, any eventual resolution could again bring a slow LNG ramp‑up — leaving the market exposed as we edge closer to the heating season. EU gas storage is less than 54% full vs. 64% last year and a 5-year average of 69%
On Friday, the European Commission announced its proposals for an overhaul of the Emissions Trading System (ETS). They include reducing the Linear Reduction Factor (LRF) for the emissions cap to 3.7% for 2031-2035 and to 1.7% for 2036-2040. This compares to a current LRF of 4.3%, which is set to rise to 4.4% starting in 2028. The proposal also includes increased free allowances for the period 2026-2030. The reduction of free allowances will be slowed, and the phase-out extended until 2038 for sectors covered by the Carbon Border Adjustment Mechanism (CBAM), starting in 2034. prices were little changed on Friday, following the proposal, with much of it already priced in.