Brent crude fell 16% in a single week, its steepest weekly decline since the COVID-19 pandemic, while WTI crude lost around 12%. Strait of Hormuz tanker traffic is the clearest test of a genuine return to normal oil supply, because a lower threat of military escalation does not by itself make the shipping route safe. Attacks on vessels in and around the strait are continuing, keeping shipping risk elevated even as prices retreat. For crude traders, the gap between calmer politics and normal flows is where the remaining supply risk sits.
Fiona Cincotta, StoneX Senior Market Analyst, covers forex, equities, commodities and crypto assets, with a particular focus on UK and European market themes. That coverage gives insight into how geopolitical risk, shipping disruption and supply balances are driving crude oil.
Key Themes
Brent crude falls 16% and WTI crude around 12% as expectations of U.S. and Iran escalation recede.
Attacks on vessels around the Strait of Hormuz continue, keeping shipping risk elevated despite lower oil prices.
JPMorgan estimates global oil supply is exceeding consumption, with the surplus widening from one month to the next.
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Oil's Iran Risk Premium Unwinds but Hormuz Shipping Risk Remains
Crude oil's geopolitical risk premium unwound sharply after Democrats won control of Congress in the U.S. midterm elections and President Trump said he was unlikely to order further attacks on Iran while negotiations to end the conflict continued. Both developments shifted expectations surrounding the Middle East conflict and were the main catalyst for the sell-off. "A Democrat-controlled Congress has basically lowered expectations of an escalation with Iran, and that's pulled oil prices sharply lower," Cincotta says. Conditions on the water have not changed at the same pace, and attacks on vessels around the Strait of Hormuz are still keeping shipping risk elevated.
Strait of Hormuz Vessel Attacks Keep Oil Disruption Risk High
Strait of Hormuz vessel attacks keep oil disruption risk high. If lower prices reflect a smaller chance of renewed U.S. strikes on Iran, it does not indicate that shipping conditions have normalized. Adding a second source of pressure, JPMorgan estimates that global oil supply exceeded consumption and that the surplus widened from one month to the next, with recovering Middle East supply, calmer shipping and relatively weak demand all able to feed that imbalance. Crude is pulled between lingering disruption risk and a building surplus.
--- Written by Frédéric Guétin, StoneX Media Producer
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