Oil: Geopolitics drive volatile price path – Rabobank

Oil prices are currently declining due to hopes for reduced conflict, particularly in Saudi Arabia, Iran, and Ukraine. However, experts warn that geopolitical developments could still dramatically impact energy prices. The Saudi east-west pipeline is set to resume at reduced capacity, while China has cautioned the Houthis against obstructing the Red Sea.

Iran has proposed reopening the Hormuz Strait in seven days if the US eases its sanctions, and Ukraine's Zelenskyy stated that both Kyiv and Washington desire an end to the conflict before winter. The threat of war remains a significant factor, with Iran accusing the US of "annihilation" following a meeting with Arab states. Russia has also suffered further damage to its oil refineries, with Moscow and St. Petersburg implementing measures to enhance bomb shelters.

If certain agreements or confrontations are reached, energy prices could change rapidly, prompting central bankers to adopt contrasting stances. Investors should not solely rely on central bankers' statements, as they may be swayed by the broader geopolitical and geoeconomic landscape. Meanwhile, AUD/USD is under pressure testing 0.7100 in the Asian session, while USD/JPY hovers near two-week highs due to the Bank of Japan's increased interest rate, which continues to weaken the Japanese Yen.

The US Dollar remains strong, as the Federal Reserve maintains a hawkish stance, further supporting the pair. Despite indirect talks between the US and Iran, markets are largely indifferent to their progress. Gold continues its steady decline in the European session, as the US Dollar's attractiveness becomes more pronounced due to the Fed's hawkish outlook.