Oil prices increased, with ICE Brent closing over 1.4% higher, surpassing $65 per barrel. The market strength stems from refined products, as gasoline and gasOil cracks rise due to supply concerns.
Ongoing Geopolitical Tensions
Continuous Ukrainian drone strikes on Russian refineries raise market issues, mainly about middle distillates. US sanctions on LukOil and Rosneft, affecting refining assets outside Russia, add to these concerns.
Russian crude oil flows face uncertainty due to sanctions. Data shows a drop, with a four-week average at its lowest since mid-September and decreased volumes to China and India. However, many Russian seaborne shipments lack a known destination, potentially ending up in India or China.
OPEC is set to release its monthly oil market report, detailing predictions until 2026. The Energy Information Administration will also publish its Short-Term Energy Outlook, including US oil and gas supply forecasts. The American Petroleum Institute will release weekly US crude and refined product inventory numbers, delayed due to a public holiday.
With Brent crude holding above $65/bbl, the real strength we are seeing is in refined products like gasoline and gasoil. The 3:2:1 crack spread, a key indicator of refinery profitability, is holding firm above $35/bbl, a level we haven’t seen since the summer. This suggests the market is more concerned about fuel availability than the underlying supply of crude oil.
The ongoing Ukrainian drone attacks on Russian refineries are keeping product markets exceptionally tight, creating a bullish impulse. We are reminded of the similar disruptions back in early 2024, and any sign of escalating attacks could push diesel and gasoline prices higher still. These supply risks are currently overriding a more fundamentally bearish outlook for crude itself.
Russian Export Data under Scrutiny
We are seeing Russian seaborne crude exports dip to around 3.2 million barrels per day, but this data is becoming less reliable. A significant portion of these barrels are on tankers with undeclared destinations, a hallmark of the shadow fleet that ultimately supplies buyers in Asia. This creates a disconnect between official tracking data and the actual supply reaching the market.
Today’s reports from OPEC and the EIA will be critical for setting direction for the rest of the year. We’ll be watching for the classic divergence between the two, with the EIA likely pointing to strong US shale output, which recently surpassed 13.5 million bpd. Any surprise downward revision in demand from either agency could temporarily halt this rally.
Given the disconnect between strong products and weaker crude, traders should consider positioning for crack spreads to remain wide. This could involve going long gasoline or diesel futures while simultaneously shorting Brent or WTI futures. This strategy isolates the bet on refining margins, which are the primary market driver right now.
For those looking to trade the outright price of crude, the high uncertainty suggests using options to define risk. Buying Brent call spreads for January 2026, perhaps targeting the $70-$75 range, offers a way to profit from further upside while capping the premium paid. The upcoming API inventory data will be the next major catalyst, and another draw in product stockpiles would support this view.
