Oil markets face volatility amid geopolitical risks and supply tightening

Global oil and refined product markets are experiencing significant volatility and tightening supply. Crude prices saw choppy trading as investors weighed potential progress on a shipping agreement between Iran and Oman regarding the Strait of Hormuz against ongoing geopolitical risks in the Russia-Ukraine conflict. Specifically, Ukrainian drone strikes on Russian refining infrastructure and reports of potential escalated missile strikes on Kyiv have maintained a floor under prices.

Simultaneously, global refined product trade is tightening, driving refining margins to record highs. This squeeze is driven by a combination of Middle East supply disruptions, reduced Russian exports following drone attacks on its refining sector, and lower refinery activity in Asia. While US exports have provided a partial offset, global seaborne shipments of products like diesel and gasoline have seen notable year-on-year declines.