ICE Brent dropped almost 0.7% as talk of a possible meeting between Presidents Trump and Putin surfaced. It’s unclear if Ukrainian President Volodyr Zelenskyy will be involved, especially since today is the deadline for the Russia-Ukraine peace deal, which might prompt the US to tighten sanctions on Moscow. Indian state refiners are hesitant to buy Russian crude oil due to tariff uncertainties. They are looking for government guidance and worry about how secondary tariffs could affect India. As a result, India may turn to other sources for crude oil, particularly from the Middle East, due to the gap between US exports and savings from Russian crude. China’s crude oil imports in July averaged 11.2 million barrels a day, an 11.5% increase from last year, but more than 8% lower than the previous month. The strong imports in June were linked to independent refiners restocking. For the first seven months of the year, the average is 11.3 million barrels a day, a 3.2% year-on-year increase. Given the current situation, we expect increased volatility for ICE Brent. The possible Trump-Putin meeting could lead to less tension, which might lower prices. Meanwhile, the peace deal deadline and potential new sanctions pose significant risks for price increases. The CBOE Crude Oil Volatility Index (OVX) has already risen to 38, signaling market stress, so we should be ready for sharp price changes. The risk of stronger US sanctions on Moscow is important, especially if today’s peace deal deadline passes without an agreement. Looking back at 2022, sanctions on Russia caused Brent crude prices to exceed $120 a barrel. This history suggests that buying some out-of-the-money call options could be a smart way to hedge against a sudden price jump if talks do not succeed. We are keeping a close watch on India’s refiners, as their next move could significantly impact the physical market. As the third-largest oil importer, if India decides to shift away from purchasing over 1.5 million barrels per day of Russian crude, this could drive up demand for Middle Eastern oil. Such a shift would strengthen the Brent benchmark, making long positions in Brent futures appealing for the coming months. The data from China paints a more cautious outlook for crude demand. While year-on-year import numbers are strong, the month-on-month decline lines up with the official manufacturing PMI from China’s National Bureau of Statistics, which has remained just above the 50-point mark, indicating only slight expansion. This suggests that while Chinese demand supports prices, it may not be robust enough to spark a major rally. Considering these mixed geopolitical and demand signals, we think a neutral options strategy, like a long straddle, is the best approach for the upcoming weeks. This allows us to benefit from significant price movements in either direction, whether from a diplomatic breakthrough or increased sanctions. It positions us to profit from uncertainty, rather than speculating on one specific outcome.

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