Brent: Covert tanker flows may ease supply pressure - Commerzbank

Commerzbank's FX Research team, comprising Charlie Lay and Dr. Henry Hao, observes that Brent crude prices have skyrocketed due to hostilities in the Strait of Hormuz, but anticipates a gradual reduction in tensions over the next few months. They posit that covert tanker passages through the strait will facilitate Gulf oil shipments, while petroleum products and natural gas will encounter a more enduring supply shortage and less promising outlook.

The surge in Brent crude oil prices can be attributed to the recent strife in the Hormuz region, making a formal agreement between the warring factions even less probable. However, even without diplomatic resolution, a slow decrease in tensions is probable in the coming months, facilitated by covert tanker transits, which should gradually restore oil shipments from the Gulf area.

Petroleum products and natural gas are projected to face a less optimistic scenario, as transportation and production disruptions are anticipated to persist in limiting supply. For early Asian trading, oil remains the predominant factor. The recent Wall Street rebound was driven by relief as Brent oil prices retreated from the USD110 level.

Nonetheless, the recent Saudi pipeline shutdown, Houthi seizure of Perim Island, and postponement of the Hormuz talks have reignited concerns about supply. Brent crude oil prices fell by 2.8% to USD104.61 last Friday but still increased by 8.7% in the past week, marking a 17% gain over the last two weeks. In Asia, the Middle East energy crisis remains the primary external risk.

Importing nations in the region will experience a worsening of their trade balance, and higher fuel prices will likely exacerbate inflation concerns, potentially hindering monetary policy easing. The AUD/USD pair dipped to a one-and-a-half-week low around the 0.7140 mark during the Asian session but lacks follow-through, trading just above mid-0.7100s, down nearly 0.25% for the day.

The USD/JPY pair gains some support at the beginning of a new week, nearing the 154.00 mark in the Asian session, reversing a portion of Friday's losses. However, spot prices remain within a range established over the past week, close to a nearly seven-month low observed last Tuesday, as traders anticipate key central bank announcements this week.

Gold experiences a steep decline on Monday, nearing the $4,250 mark per troy ounce, or multi-week lows, due to a strong US Dollar rebound and rising US Treasury yields across the curve. The decline in gold is a consequence of consistent speculation about an interest rate increase by the Federal Reserve and renewed inflation concerns following the surge in crude oil prices.

Bitcoin edges higher, trading near $77,884 as of Monday, in line with broader gains in the cryptocurrency market. Ethereum and Ripple maintain a neutral-to-bullish position, holding key support levels at $2,521 and $1.38, respectively. The Federal Reserve's rate hike expectations intensify after the release of the Personal Consumption Expenditures (PPI) and Consumer Price Index (CPI) reports, with the updated dot plot playing a crucial role in determining the dollar's reaction.

The Fed's independence is tested amid pressure from President Trump for lower rates. For the Dollar to maintain its upward momentum, the Federal Reserve must satisfy current hawkish expectations.