Before the weekend, oil prices fell following Iran’s statement to open the Strait of Hormuz, then rose again with the reinstatement of the navigation blockade.
Stock markets continue to price in relatively favorable scenarios, with positive earnings updates and future prospects supporting the rise.
THE SITUATION IN THE COMMODITY MARKETS
The situation in the commodity markets is more complex, as real supply constraints are looming on the horizon.
With reduced ship movements, energy supply problems are worsening.
Concerns are growing regarding jet fuel supplies in Europe over a four-to-six-week timeframe.
Volatility will likely remain a dominant feature ahead of ceasefire negotiations.
Last week brought increasingly positive news about events in the Middle East, particularly on Friday, when oil prices dropped significantly after Iran announced that the Strait of Hormuz would be open to all ships during ceasefire talks.
BETWEEN HOPES AND REALITY
However, weekend developments created confusion. The 10% drop in oil prices recorded on Friday turned into a 5% increase on Monday morning, a swing triggered by the persistent closure of the Strait.
Despite the brief “opening” window, traffic remained very limited: some vessels tested the navigation channels over the weekend, but many turned back after some ships were targeted. Added to this is the US seizure of an Iranian vessel in the Gulf of Oman. In other words, last week’s progress seems to have reversed.
Further peace talks are expected before the current ceasefire ends. The US is sending a delegation to Pakistan, but there is uncertainty regarding the Iranian delegation. Recent rhetoric has been more aggressive, with the US again threatening Iranian infrastructure and the Tehran regime rejecting comments on concessions related to nuclear capabilities.
THE IMPACT ON FINANCIAL MARKETS
What does all this mean for financial markets? In recent weeks, equities have seen a strong rally, with price levels reflecting relatively favorable scenarios. These gains have been driven by the corporate earnings season, which so far has been very positive: companies issuing forecasts do not seem particularly disturbed by the conflict, which helps to look beyond short-term news.
In parallel, the situation regarding commodity prices is much more complex. Brent with prompt delivery began to show clear signs of supply tension just last week. At the start of the week, prices were at $140 per barrel or more, then closed just below $100. We are moving from price issues to real supply difficulties, and the reason is simple. Ships that left the Gulf before the conflict are now making final deliveries to refineries worldwide, but when those stocks are not replenished, since ships are still unable to cross the Strait, supply problems will become more acute. In fact, we are already seeing warning signs regarding jet fuel in Europe, and these problems will likely become more significant in four to six weeks.
In summary, commodity prices continue to reflect a context of uncertainty, while stock markets move on more favorable scenarios, with earnings set to be the main driving factor. With the ceasefire deadline looming and a lack of clarity on upcoming negotiations, an increase in volatility is likely.
