Key facts
- Standard Chartered predicts oil prices will continue to experience sharp and frequent spikes.
- The bank expects middle distillates like diesel and jet fuel to outperform gasoline.
- European natural gas prices rose above €81/MWh on Thursday, the highest since December 2022.
- QatarEnergy extended force majeure on LNG deliveries to European and Asian buyers into October and November.
- Germany's natural gas inventories are at 54% capacity, and the Netherlands' at 48%.
Oil prices surged to nearly $110 per barrel on Thursday, reaching levels not seen since July, amid escalating tensions in the Middle East and fading hopes for a swift resolution to the ongoing conflict. The Islamic Revolutionary Guard Corps (IRGC) announced on Wednesday that it had attacked and heavily damaged eight oil tankers and two U.S. Navy destroyers in the Strait of Hormuz, a move it claimed was retaliation for the U.S. military destroying five IRGC-linked oil tankers in the Gulf of Oman on Tuesday night. However, the U.S. Central Command (CENTCOM) has denied the IRGC's claims.
Adding to the uncertainty, U.S. President Donald Trump indicated that the conflict is unlikely to conclude before the November midterm elections, with advisors reportedly warning him that it could persist for the remainder of his term. By Friday morning, Brent crude was trading at $103.58 per barrel, while West Texas Intermediate (WTI) was quoted at just over $98.
Analysts at Standard Chartered have predicted that the current volatility in oil prices, driven by headline events, will persist through the third quarter. They attribute this to the stalemate in the US-Iran conflict and the lack of diplomatic progress to ease export restrictions through the Strait of Hormuz. The bank noted that middle distillates remain exceptionally strong, with some markets under significant stress due to heat, drought, and logistical bottlenecks. Standard Chartered expects the strength in middle distillate cracks—the price difference between crude oil and the fuels derived from it—to continue, with diesel, gasoil, and jet fuel outperforming gasoline. The bank forecasts an average oil price of $77.50 a barrel in 2027, driven by returning demand, particularly from China, and the need to replenish strategic reserves.
Meanwhile, the Asia Pacific Petroleum Conference (APPEC) in Singapore concluded on Thursday, with participants appearing to brace for a prolonged Middle East conflict. Standard Chartered highlighted China's recovering demand for crude imports and its capacity to redirect refined products to tight Asian markets as a key factor in global oil flows. Consumers are increasingly valuing flexibility in crude grades, suppliers, refining configurations, and product sources following repeated disruptions that have reshaped trade routes.
Energy experts at Standard Chartered believe oil markets are vulnerable to price spikes due to progressively less spare capacity, inventory, and logistical slack available when multiple disruptions occur simultaneously. They stated that the market is characterized by more frequent and sharper upside price spikes, even if these rallies are later faded, indicating that refined products will remain more susceptible to disruptions than crude.
Concurrently, Europe's natural gas prices have continued to climb, exceeding €81 per megawatt-hour on Thursday, the highest level since December 2022. This surge is largely attributed to the disruptions stemming from the Middle East conflict. A Qatar-loaded LNG carrier's transit through Hormuz on September 8th, bound for Pakistan, provided evidence that Qatar might be testing the feasibility of restarting exports through the waterway. However, Standard Chartered cautioned that significant uncertainty remains regarding whether this signals a sustained resumption of exports.
Outbound LNG flows from the Persian Gulf are still below pre-war levels, and QatarEnergy has extended force majeure on LNG deliveries to European and Asian buyers into October and November. Qatar has also maintained reduced operations at Ras Laffan, keeping equipment ready to ramp up production if conditions allow. Standard Chartered suggested that a short-term increase in LNG exports from vessels already loaded within the Gulf is possible without indicating a sustained recovery in Qatari supply. They noted that repeated safe passage and evidence of a broader production ramp-up would be needed before markets materially reduce the supply-risk premium embedded in European gas prices.
In Europe, stronger injections into Continental Northwest Europe (CNWE) storage, coupled with unplanned curtailments at key Norwegian gas assets, have tightened the region's gas balance. European storage is currently at 66% of full capacity, 12 percentage points lower than at the same time last year and represents a 15-year low for this period. The deficit is particularly concentrated in major economies, with Germany's inventories at 54% and the Netherlands' at 48%. Experts have warned that Germany could face a demand-supply gap of up to 25% on peak January days if winter temperatures are lower than anticipated.