Written by No relief for oil crunch
Oil futures are surging again on Thursday amid a deepening energy crisis, as 12 days of bombardment by US and Israeli forces on Iran does not appear to have debilitated Tehran’s ability to launch drone and missile strikes on its enemies. Iran struck two oil tankers in Iraqi waters earlier today, forcing Iraq to close all its oil ports. On Wednesday, drone attacks targeted Omani oil storage facilities and ports, while cargo ships in the Strait of Hormuz have also been hit.
Brent crude futures made an alarming return to the $100 per barrel territory at the start of trading today, before easing slightly below the level. WTI futures are currently up more than 5% to trade around $92 a barrel.
The latest gains come even as the International Energy Agency agreed on Wednesday to release a record 400 million barrels from its emergency oil reserves, with the United States contributing a further 172 million barrels from its strategic reserves, in a bid to ease the global disruption to supply.
Markets gripped by inflation fears
The rebound in oil prices likely comes as a huge disappointment to President Trump, who on Wednesday claimed that the US has won in Iran. However, there seems to be a lot of mixed messages coming from the administration on the duration of the war, with Trump saying, "We don't want to leave early”, adding "We got to finish the job".
The longer the conflict drags on, the production shutdowns and damage to energy infrastructure in the Middle East will almost certainly get worse. Investors are already getting anxious about prolonged disruptions to oil and gas supply, with market-based inflation expectations edging sharply higher.
Government bond yields are also rallying again, leading to a significant trimming in rate cut expectations. A second rate cut by the Fed this year is close to being fully priced out, while a summer rate hike by the ECB is becoming a certainty.
Making matters worse is the start of trade investigations into major trading partners by the US to give the White House legal justification to slap tariffs under Section 301 of the Trade Act, to replace the temporary levies that were imposed under Section 122 following the Supreme Court’s ruling against the IEEPA tariffs.
Dollar dismisses CPI data, yen hits new low
Investors largely ignored yesterday’s CPI report out of the US that showed inflation held steady in February. Both headline and core CPI were in line with expectations at 2.4% and 2.5% respectively. But with fuel prices soaring again, the upcoming CPI releases will be more crucial. Friday’s PCE inflation numbers may also be shrugged off, unless they surprise to the upside.
The weekly jobless claims will be watched later today, and the US dollar is trading marginally higher ahead of it. Against a basket of currencies, the greenback is approaching Monday’s three-month high.
The yen briefly brushed a near two-month low of 159.23 per dollar in early Asian trading before firming to around 158.75 per dollar. The absence of any fresh verbal intervention by Japanese authorities in recent days suggests the bar for intervening in the FX market may have gone up following the escalation in the Middle East. Though, investors still need to tread carefully when testing the 160-yen level for any potential action.
Gold stuck in sideways range, stocks slip again
Gold remained subdued on Thursday, holding within its recent tight trading range, as the precious metal is likely being pulled in opposite directions, with the stronger US dollar and jump in yields countering the increased safe-haven demand.
Whilst gold may struggle to break new ground in the near term, it doesn’t appear that the Iran conflict will be ending anytime soon, as Tehran has indicated it will only agree to a ceasefire if the US and Israel provide guarantees that they will stop striking the country. Hence, this possibly ensures that gold remains supported above $5,000 for the foreseeable future.
In equity markets, it’s another red day globally, as US futures point to a third straight session of losses for the S&P 500. However, a 9.2% rally in Oracle helped the Nasdaq 100 to close marginally higher on Wednesday.
But with oil prices reversing higher and growing jitters about the US private credit market, any renewed AI optimism will probably struggle to lift Wall Street.
By XM.com
