Brent crude fell to around $80/barrel as markets renewed bets on a diplomatic easing of tensions between the US and Iran, reflecting a faster decline in the geopolitical risk premium related to supply disruptions in the Strait of Hormuz than in physical supply pressures.
However, this does not mean the energy market has truly eased: refined product prices remain significantly tight, with octane-related component prices remaining high and high-frequency regional inventories declining further the previous week.
Citigroup expects that the tightness in gasoline components is likely to gradually improve in the fourth quarter as summer demand recedes, refinery operations resume, and operational bottlenecks ease. Therefore, it is crucial to distinguish between the "decline in crude oil risk premiums" and the "easing of physical supply and demand for refined products": the former is mainly driven by geopolitical expectations, while the latter depends on the actual recovery of refineries, inventories, and trade flows.
This risk is still fluctuating. On August 11, as expectations for a US-Iran agreement cooled again, Brent crude rose back to around $87.8, while global diesel supply remained tight, and US distillate fuel inventories fell to near multi-year lows.
