Oil: Falling Inventories and Risk Premium Support Prices – ING

Driven by both geopolitical risks and supply-demand fundamentals, international oil prices continue their upward trend. ING commodity strategists note that the market is simultaneously digesting tensions between the US and Iran, as well as potential threats to key shipping lanes.

**Geopolitical Risk Premium Returns**

Warren Patterson, Head of Commodities Strategy at ING, says recent events have prompted a re-pricing of war risk premium into crude prices. Concerns over potential disruptions to tanker traffic through the Strait of Hormuz have become the core sentiment factor lifting oil prices in the near term. As the world's most critical oil transport chokepoint, any expectation of disruption is sufficient to trigger sharp price volatility.

**Falling Inventories Provide Fundamental Support**

Beyond geopolitical factors, the continued decline in crude inventories also provides a solid foundation for prices. ING strategists Ewa Manthey and Warren Patterson emphasize in their report that the combination of tightening inventories and risk premium constitutes the dual driving force behind the current sustained strength in oil prices. Although the market had previously come under pressure from an unexpected build in US crude inventories, the latest trend indicates that the supply-demand balance is re-tightening.

**Outlook Still Uncertain**

Despite short-term support for oil prices, ING strategists caution that the market still needs to monitor potential risks. Prices previously fell below $65 per barrel, suggesting that fluctuations in demand or macro sentiment could still trigger a pullback. However, until the current geopolitical situation becomes clearer, the risk premium is expected to continue providing bottom-line support for oil prices.