Oil: Hormuz risks keep prices in focus – Rabobank

Rabobank's Senior Market Strategist Benjamin Picton discusses recurring Middle East tensions around the Strait of Hormuz and their impact on Oil and Brent. Picton notes that strikes on Iran have been halted again, pushing Brent lower and supporting risk assets, but warns that later in the week strikes typically resume, Oil prices rally, equities sell and bond yields rise.

Hormuz dynamics drive energy volatility

"It’s Monday morning again and it feels like Groundhog Day as I sit down to write that the US President has (again) halted strikes on Iran and teased that a diplomatic breakthrough is close. Brent crude prices have dutifully fallen in early trade, risk currencies are rallying and equity markets are poised to extend the gains posted late last week."

"Of course, the other aspect of the Hormuz Groundhog Day is that later in the week strikes typically resume, oil prices rally, equities sell, and bond yields rise. While there is every chance of that happening this week for now the impression seems to be of ‘strikes for strikes’."

"Markets have so far taken large draws in global inventories in their stride with price rises mostly insufficient to cause severe demand destruction. At the same time, higher prices have induced a supply response by lifting US oil rig counts by almost 11% since the war broke out, increasing refinery capacity utilization, and prompting OPEC+ to announce another 188,000 lift in production quota from September onwards."

"The physical realities of war in the Eastern Europe and the Middle East have rendered the latter a mostly theoretical increase for the time being, but could contribute to a structural reshuffling of the energy deck on the other side of the current crisis. Product markets continue to provide the clearest hints of the seriousness of the current supply squeeze, with Singapore gasoil spot prices still sitting more than two standard deviations above the long-run spread to Brent."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)