Senior Market Strategist at Rabobank Benjamin Picton talks about how oil and Brent are affected by ongoing tensions in the Middle East surrounding the Strait of Hormuz. Picton points out that the strikes on Iran have been postponed once more, which has caused Brent to drop and supported riskier assets. However, he cautions that strikes usually resume later in the week, when oil prices increase, stocks fall, and bond yields climb.
Energy volatility is driven by hormuz dynamics.
"As I sit down to write that the US President has (again) stopped strikes on Iran and hinted that a diplomatic solution is near, it seems like Groundhog Day on Monday morning. Risk currencies are rising, Brent crude prices have obediently dropped in early trade, and equity markets are ready to build on the gains made late last week."
The fact that strikes usually resume later in the week, oil prices increase, stocks sell, and bond yields climb is, of course, another component of the Hormuz Groundhog Day. Although there is a good probability that will occur this week, it currently appears to be "strikes for strikes."
"So far, markets have accepted significant increases in global stockpiles, with price increases typically insufficient to seriously destroy demand. In addition, since the start of the war, the number of US oil rigs has increased by over 11%, refinery capacity utilization has increased, and OPEC+ has announced an additional 188,000 increase in production quota starting in September.
"The Middle East is currently only a theoretical rise due to the physical reality of conflict in Eastern Europe and the Middle East, but it could lead to a structural reorganization of the energy deck on the other side of the current crisis." With Singapore gasoil spot prices still more than two standard deviations above the long-run spread to Brent, product markets continue to offer the most obvious indications of the severity of the current supply crunch."
Energy volatility is driven by hormuz dynamics.
"As I sit down to write that the US President has (again) stopped strikes on Iran and hinted that a diplomatic solution is near, it seems like Groundhog Day on Monday morning. Risk currencies are rising, Brent crude prices have obediently dropped in early trade, and equity markets are ready to build on the gains made late last week."
The fact that strikes usually resume later in the week, oil prices increase, stocks sell, and bond yields climb is, of course, another component of the Hormuz Groundhog Day. Although there is a good probability that will occur this week, it currently appears to be "strikes for strikes."
"So far, markets have accepted significant increases in global stockpiles, with price increases typically insufficient to seriously destroy demand. In addition, since the start of the war, the number of US oil rigs has increased by over 11%, refinery capacity utilization has increased, and OPEC+ has announced an additional 188,000 increase in production quota starting in September.
"The Middle East is currently only a theoretical rise due to the physical reality of conflict in Eastern Europe and the Middle East, but it could lead to a structural reorganization of the energy deck on the other side of the current crisis." With Singapore gasoil spot prices still more than two standard deviations above the long-run spread to Brent, product markets continue to offer the most obvious indications of the severity of the current supply crunch."
