TD Securities said the recent easing in the oil market may be temporary, with Brent crude still able to reach $150/bbl or higher if supply risks occur. It said constrained speculative flows, Chinese storage draws, tighter product markets, and rapid US inventory declines could push prices higher.
The note said the market is in a period of relative calm, but renewed disruption could follow without a resumption of flows. It added that elevated export volumes from the US and other cargoes bought during the April panic are arriving in Europe and Asia.
TD Securities said refiners currently have crude for immediate use and are waiting for a possible end to the conflict before securing new shipments. It said elevated exports and refineries running hot may keep crude inventories falling heavily through the summer, with no end in sight.
The article said it was created with the help of an Artificial Intelligence tool and reviewed by an editor.
The energy market appears calm, but we believe this is temporary and renewed price volatility seems just around the corner. Many European and Asian refiners are using crude bought during the April panic, opting to wait before securing future shipments. This creates a false sense of security while underlying fundamentals continue to tighten.
This tightening is clear in the United States, where the latest Energy Information Administration (EIA) report showed U.S. crude inventories fell by another 4.2 million barrels. This continues a trend of heavy draws through the spring, fueled by elevated exports and refineries running hot. We see this inventory decline accelerating through the summer driving season with no end in sight.
At the same time, demand signals from China are strengthening, with the latest Caixin Manufacturing PMI for April coming in at 51.4, marking the sixth straight month of expansion. This growing industrial appetite coincides with renewed naval tensions around the Strait of Hormuz, a critical chokepoint. These brewing storms suggest a significant supply risk is not being priced into the current market.
This situation suggests that long-dated call options on Brent are currently undervalued given the scale of the risks we see. Implied volatility has remained surprisingly low, presenting an opportunity for traders to position for a potential spike. Building positions in out-of-the-money calls, such as the $140 or $150 strikes for late summer contracts, could offer significant upside.
We saw a similar dynamic unfold in early 2025, when a period of market calm was shattered by an unexpected supply disruption that sent prices soaring. Back then, the market was caught off guard by how quickly low inventories translated into a price panic. The current setup feels eerily familiar, and a potential move to $150 per barrel should not be dismissed.
