ING Analysts Warn Oil Market Sentiment Has Overshot to the Downside

The sharp selloff in energy markets appears disconnected from the underlying physical reality. While Brent crude recently tested lows unseen since the onset of the conflict, the market has banked heavily on a rapid normalization of tanker flows that remains elusive. Tit-for-tat strikes over the weekend underscored that the 60-day ceasefire is paper-thin, leaving the vital Strait of Hormuz vulnerable to sudden shifts in military posture.

Financial indicators point toward a market that has drifted into an extreme bearish position. Speculative gross short positions on ICE Brent have reached historic peaks, creating the classic ingredients for a potential short squeeze. Simultaneously, refiners have been stalling, opting to exhaust existing on-site stockpiles rather than securing new shipments. This strategy is unsustainable; eventually, the need to replenish inventories will force a shift in demand. China’s crude imports have dropped nearly 30% year-on-year to 7.8 million barrels per day, yet Kpler projections suggest a recovery could emerge as early as August, providing a potential floor for global prices.