Brent oil prices rose in early Thursday trading, reaching $108 and approaching the levels seen earlier in the week, before the US administration signalled its intention to end the war with Iran. The President of the United States changed tone once again, threatening to intensify the attacks on Iran during his televised address on Wednesday night. The latest developments reinforce the view that the conflict is likely to continue beyond April and, perhaps most worryingly for energy traders, without any realistic prospect of shipping through the Strait of Hormuz returning to normal. This latest shift triggered a broad reversal across the markets, with oil and gas prices moving higher, the dollar strengthening, and bond yields rising, while equity markets gave up some of the ground recovered in the previous session. Against this backdrop, we can expect continued volatility in the markets, with prices fluctuating as the US administration’s narrative on the war shifts from aggressive to constructive and back again. Nevertheless, the path of least resistance for oil prices remains tilted to the upside because, despite the political noise, the underlying reality is that the longer the Strait remains effectively closed to around 25% of the world’s oil and gas flows, the greater the impact of the supply shock on the global market and the greater the likelihood of further price spikes.
Ricardo Evangelista, ActivTrades
Source: ActivTrader
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