Oil: Hormuz risks keep prices in focus – Rabobank

Benjamin Picton, Senior Market Strategist at Rabobank, discusses the ongoing tensions in the Middle East surrounding the Strait of Hormuz and their impact on oil and Brent prices. He mentions that recent strikes on Iran have been halted, causing Brent crude prices to fall and supporting risk assets. However, Picton warns that strikes are likely to resume later in the week, leading to a rally in oil prices, a sell-off in equities, and a rise in bond yields.

Picton notes that markets have largely accepted the large drawdowns in global inventories, with price increases not causing severe demand destruction. US oil rig counts have increased by nearly 11% since the war began, and OPEC+ has announced another production quota increase from September onwards. However, the supply response is currently limited due to the ongoing conflict in Eastern Europe and the Middle East.

Physical realities suggest that the latter increase is mostly theoretical at present. Despite this, product markets indicate a serious supply squeeze, with Singapore gasoil spot prices still more than two standard deviations above the long-run spread to Brent. The article also touches on currency movements, with GBP/USD reaching new three-month peaks near 1.3560, EUR/USD advancing to the upper 1.1500s, and gold showing potential to build on a bounce from the $4,300 level.