Enduring geopolitical risk factors continue to upset the global oil market, pushing prices up. Risk premiums from Russia and the Middle East remain significant despite ongoing efforts toward a lasting ceasefire.
Furthermore, signs of improving oil demand in the past few weeks offers reasons for optimism, on top of bullish crude inventory levels from the world's largest oil consumer and producer, the US, which decreased by 2.3 million barrels last week. Rystad Energy's analysis expects even greater declines this week — potentially up to 4-5 million barrels in crude stocks—and an increase in refining runs by nearly 170,000 barrels per day (bpd).

Geopolitical tensions keep oil market on edge
Geopolitical pressures continue to roil the oil market from multiple fronts. The longstanding Russia-Ukraine conflict remains a dominant factor, with tensions showing no signs of abating.

A recent peace summit in Switzerland garnered support for Ukraine's territorial integrity and its efforts to end Russia's incursion.

However, notable absences, including Russia and key nations like India, Brazil and South Africa declining to endorse the summit's outcome, underscore ongoing divisions.

China, a staunch supporter of Russia, cited Moscow's exclusion for its non-participation.

Consequently, geopolitical tensions are expected to persist amid failed efforts to broker ceasefires.

Meanwhile, refinery operations in Russia have faced disruptions due to drone attacks on two oil facilities.
Fires broke out at the Platonovskaya oil depot in the Tambov region and in Enem village, Adygea.
These strikes are part of Ukraine's campaign since January targeting Russian oil infrastructure.
Despite claims that these facilities are legitimate military targets, US officials have cautioned against targeting oil hubs to prevent global market disruptions.
Recent estimates indicate these attacks temporarily affected up to 14% of Russia's refinery capacity, though operations were swiftly restored, minimizing supply chain disruptions.

Elsewhere in the Middle East, tensions add further instability.
Following Iran's direct attack on Israel in April and subsequent de-escalation efforts, hopes for a ceasefire have faltered in recent weeks.
The Biden Administration has expressed doubts about achieving a comprehensive ceasefire given current conditions.
Key sticking points include Hamas's demand for a complete Israeli withdrawal from Gaza in later phases of proposed agreements.

Additionally, Iran gears up for presidential elections following President Ebrahim Raisi's recent death in a helicopter crash.
Front-runners include hardliner Saeed Jalili and pragmatic conservative Mohammad Baqer Qalibaf.
The election unfolds amidst ongoing Gaza conflict and persistent diplomatic strains over Iran's nuclear ambitions.
Fundamentals
On fundamentals, concerns about oil demand were alleviated by the Energy Information Administration's (EIA) most recent report published on 20 June.

The data showed a significant decrease in US crude inventories, by 2.5 million barrels and a much larger-than-expected drop in gasoline stocks, which fell by 2.3 million barrels.

This was in part the result of US gasoline demand bouncing back to almost 9.4 million bpd – the highest since November last year – and distillates to almost 4.0 million bpd – the highest since March.

For the week ahead, Rystad Energy’s analysis predicts an even larger crude stocks draw, potentially as large as 4-5 million barrels and refining runs increasing by close to 170,000 barrels per day (bpd).

Gasoline demand should stay above 9 million bpd and gasoline stock should draw by 0.7 million barrels.

On global demand, expectations of a summer surge have been buoyed by the continuous expansion in aviation.
This year, jet fuel is anticipated to see a 550,000-bpd year-on-year increase in consumption, following a massive 1.2 million bpd growth last year.
The global aviation active fleet index has rebounded to pre-COVID-19 levels as of February 2024 and has consistently exceeded the levels seen in previous years.
Due to increases in fuel efficiency over the past five years, jet demand will only close the gap to pre-pandemic levels by August.
From there on, it will continue to expand at higher than historical rates until it closes the gap with the pre-pandemic jet demand trajectory, which we expect to occur at 8 million bpd in 2026.
For the time being, this strength in aviation activity signals a positive trend for oil demand, particularly in the context of summer travel, economic recovery and consumer optimism.

Macroeconomic pulls

The one to watch on an industrial front, continues to be the Chinese electric vehicles (EVs) industry, which is encountering tougher hurdles in the American and European markets amid escalating tariffs.
Chinese EVs are arguably already more competitive than their Western counterparts, and these hefty tariffs will no doubt decelerate the passenger road transport electrification outside of China.
Rystad Energy has observed a slowdown in the EV market penetration since 2023, which has continued in the first quarter of 2024, and will reflect in a lower-than-expected offset of gasoline demand in 2024 and onwards.
Due to the dominant role of China in the global battery and EVs supply chain, an increase in trade tensions with the West will result in a further slowdown in the pace of transport electrification, at least until the tension and tariffs persist.

China's economic performance will come into focus with the release of data from the Purchasing Managers Index (PMI).
In May, it fell short of expectations at 49.5 compared to an anticipated 50.5.
For June, the expectation is for the PMI to be above 50 on the back of recent positive news, which would bode well for the world’s second-largest economy.
The US Core Personal Consumption Expenditures (PCE) is anticipated to stand at 2.7%, representing a decrease from April but still significantly above the Federal Reserve's 2% target, while the market remains optimistic about the rate cuts in September.

Factoring all these fundamental and non-fundamental elements, Brent prices appear slightly risked to the upside in the coming weeks.