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Russell: The price of crude oil makes Trump TACO less likely to trade:
Crude oil futures are still pricing in a resolution of the Middle East conflict that will result in the full opening of the Strait of Hormuz. In 'pricing' for this outcome, the market actually makes it more likely that the narrow waterway which serves as a conduit to as much as 20 % of the world’s oil supply remains closed. The market still expects U.S. president Donald Trump to deliver TACO - the acronym for Trump always chickens out. By keeping the price of 'paper crude oil' at levels that allow for a relatively rapid return to normal flow from the Persian Gulf it gives Trump the room he needs to continue the conflict in the mistaken belief that the global market isn’t at crisis point yet. It's a Catch-22. The paradoxical, no-win situation popularised in 1961 by Joseph Heller's novel with the same title. Brent crude futures, the global benchmark for oil prices, were trading at around $111.81 per barrel during early Asian trade Monday. They had risen by 54% from the $72.48 close on February 27, a day before Israel and the U.S. launched an air campaign against Iran. Brent reached a high of $139.13 per barrel when Russia invaded Ukraine on February 20, 2022. The Russian attack on Ukraine is different from the conflict currently raging in the Middle East because the Russian action did not result in significant losses of crude oil and refined products. China and India took up the slack when European countries stopped purchasing Russian crude and products. The disruption was limited to the rerouting of flow and pricing. The situation today is quite different. Most of the 20,000,000 barrels of crude oil and refined products that normally transit the Strait of Hormuz have been lost. Even with the increased flow of crude oil and refined products from the United Arab Emirate of Fujairah on the Gulf of Oman and Saudi Arabia's Yanbu Port in the Red Sea, the world's?market will still lose at least 12,000,000 barrels of product per day. The International Energy Agency's moves to release their stockpiles, and the waiver of U.S. sanctions against Russian oil and Iranian crude in water are only temporary solutions that don't do much to solve the problem. HORMUZ is the only game The Strait of Hormuz is the single most important factor. And the longer the Strait remains closed to the majority of vessel traffic, the more strain it will put on global supply. Singapore jet fuel prices are already showing the strain in Asia. The price of a barrel reached a record high on March 19 at $225.62, having more than doubled from the previous close on February 27, when it was $93.45. The highest price of jet fuel was $173.69 per barrel during the price spike after Moscow's invasion of Ukraine. This shows that physical traders did not perceive the same risk as the current war with Iran. The market must ask itself how high crude oil futures will have to go before Trump is forced to deliver on the TACO deal, instead of the current mixed message word salad. Trump has switched in recent weeks from saying that the conflict would be over soon, to threatening to obliterate Iran's energy infrastructure if the Strait of Hormuz was not reopened. This move and the likely Iranian attacks on energy infrastructure in the Gulf do not sound like the necessary de-escalation to control crude oil futures. It seems that the de-escalation of tensions and a reopening of the Strait are getting further apart with every passing day. The history shows that long-running, intractable conflict is usually resolved only when one side achieves a decisive victory in a war. This is unlikely to happen in the current war. Or when the peace interests of the majority of parties begin to align. Trump wants to end the conflict quickly to increase the chances that his Republican Party will win the mid-term elections in November. But his ego also needs a victory even if only his domestic political base believes it. Israel wants to eliminate Iran permanently as a threat and does not seem to care if a "severe recession" is the result of continuing the war. Iran's authoritarian regime, which has achieved its first goal of survival, might believe that prolonging the conflict will give it more leverage to negotiate favorable terms for any settlement. Russia is probably laughing to the bank, and wants the war on indefinitely. China believes it will be insulated by its large crude oil stockpile. However, the longer the conflict continues, the more likely that the fallout on China's highly dependent economy. Virtually all major Asian, African, and European nations want a "rapid" end to the conflict, as they fear the economic implications of a prolonged lack of crude oil supply from the Gulf. Fuel-importing countries are particularly at risk. Lack of alignment increases the likelihood of war continuing or even getting worse. The global economy is likely to be affected by a loss of at least 10% of its crude oil and refined product supply. The problem this time is supply, not demand. The global economic impact of adjusting demand by 10 million bpd is not evenly distributed. Regions like Asia and Africa will likely suffer more. Even in wealthy countries, governments often lack the fiscal power to combat an increase in energy prices and their accompanying economic downturn. You like this column? Open Interest (ROI) is your new essential source of global financial commentary. ROI provides data-driven, thought-provoking analysis on everything from soybeans to swap rates. The markets are changing faster than ever. ROI can help you keep up. Follow ROI on LinkedIn, X. These are the views of a columnist who writes for.
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Stocks rally after Trump delays Iran military strike
The?world?markets quickly reversed their course on Monday, after U.S. president Donald Trump announced that he had ordered the military to "postpone any attacks against Iranian power plants and energy infrastructure", easing fears over a?deeper oil shock. The markets reacted quickly and clearly: Brent crude oil futures dropped sharply, and the dollar was devalued against major currencies. Stock markets rose and government borrowing rates fell. It was exactly what the markets needed to hear in order to re-price worst-case scenarios. Fiona Cincotta is a senior market analyst at City Index. She said that the Strait of Hormuz could reopen. It's already being priced into the market. If we receive more positive comments, especially from Iran, that confirm the idea that "progress is being made," then this recovery will continue. The Iranian media contradicts Trump's comments Trump claimed that the postponement was a result of productive discussions with Iran. Iran's Tasnim News Agency, citing a senior Iranian official, stated that the Strait of Hormuz will not return to its pre-war condition and that energy markets will remain unresolved. It also added that there were no ongoing negotiations with the U.S. Evelyne Gomez Liechti, Mizuho's multi-asset strategist noted that headlines in Iranian media contradicting Trump's remarks tempered market movements. For now, however, the markets are largely optimistic. Brent crude prices last fell 7%, to around $103 per barrel. This was a reduction of losses from their previous 15% drop to $96. They reached $119 last Friday. Investors' expectations of central bank rate increases in Europe grew after Trump's remarks. Government bond yields dropped dramatically. U.S. Stock Futures are 1.4% higher, which indicates a strong Wall Street opening. European stocks last rose 0.7%. INVESTORS EXPECT AN IMPROVEMENT IN TRIM RATES The 2-year yield in Britain, which has been the hardest hit by the bond selloffs since the beginning of the conflict fell 6 basis points yesterday, after rising 13 basis points earlier. The 10-year yield fell from its highest level since 2008. Investors have lowered their expectations of a?Bank of England interest rate hike, with two hikes fully priced in by the end of the year compared to more than three hikes earlier on Monday. They also reduced their expectations of a?European Central Bank interest rate hike. The 10-year Treasury yield was the lowest, at 4.37%, and the yields across the curve were down by 2-3 bps. The dollar had been trading higher than most other currencies before the headline event. The euro rose 0.1% to $1.158 from a previous low of $1.1485. It's a clear jaw-boning when compared to the recent meltdown. "We're seeing some knee-jerk reactions to these positive?news," Elias Haddad said, global head of markets strategy at Brown Brothers Harriman. There's definitely room for a little unwinding in the fear-trade. If this is a genuine de-escalation, or a mere pause in the escalation process before the next leg, a more sustained rally will be possible in risk assets. (Reporting and editing by Amanda Cooper and Elisa Martinuzzi; Additional reporting by Lucy Raitano, Purvi Agarwal and Alex Richardson;
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Middle East shock gives Dangote Refinery a leverage as cheap imports are drying up
Nigeria's Dangote Petroleum Refinery increased gasoline exports to Africa as disruptions in energy supply due to the Iran Conflict squeezed traditional fuel routes and curtailed the cheap imports which dominated West African markets. According to data from the tanker-tracking company Kpler, Nigerian exports of clean petroleum - including gasoline, diesel and kerosene - are up from 100,000 barrels per day on average in February to 214,000 barrels?per day in March. The number of shipments to other African countries has risen to 90,000 bpd. Previously it was only 38,000 bpd. Sources familiar with the deal said that the 650,000 barrels per day Dangote refinery sold?12 loads of premium motor spirits, totaling 456,000 metric tonnes, to international traders on a "free-on-board" basis. The shipments were delivered to Cote?d'Ivoire (Côte d'Ivoire), Cameroon (Cameroon), Tanzania, Ghana, and Togo. This sale marks the first time that 'Dangote has exported?gasoline after reaching full capacity in February. OPPORTUNITIES AVAILABLE TO REFINERS WHEN SUPPLY CHAIN LENGTHS ARE SHORTER As the Middle East conflict escalates, global crude prices are rising. This has increased feedstock costs for refiners around the world. Shipping disruptions, as well as a lower availability of fuel from Europe and Gulf, have also cut the flow of low-cost products into West Africa. This has opened up opportunities for suppliers who have shorter supply chains. Aliko Dangote, the owner of Dangote, has been arguing with Nigerian regulators about continued petrol imports that he claims undermine his refinery. Last month, Nigeria stopped imports. Since then, domestic fuel prices have risen by more than 50% due to the turmoil in energy markets caused by the Iran conflict. Fuel availability and pricing are highly sensitive to global market fluctuations. The country uses between 50-60 million litres per day, which is about one-fifth the total African demand. West Africa relies heavily on fuel imports from Europe and the Middle East. These cargoes are often of lower quality and leave the region vulnerable to supply delays and logistical problems. The Middle East Crisis is forcing more local fuel dealers to buy from the Dangote Refinery as the refinery tries to stop all imports. (Reporting and editing by Jan Harvey; Isaac Anyaogu)
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Putin calls for "balanced decisions" on the use of Russia's oil revenues
The Russian President Vladimir Putin on Monday told the government to take "balanced" decisions on how to use newly increased'state revenue' from?energy exports in light of a surge in global prices. He also stressed that the economy and the public accounts must be protected from external risks. He asked Russia's energy companies to use their additional revenues to pay back the massive debts they owe to banks. Prior to this month's dramatic rise in energy and?oil prices, due to the conflict in the Middle East, Russia had been experiencing falling budget revenues due to a greater discount on its oil because of Western sanctions and a strong rouble. The government has prepared a package that includes measures to reduce non-essential expenditures and prevent the fiscal reserves from being depleted. The U.S. and Israel's attacks on?Iran have changed the fortunes of Russia, forcing it to decide what to do with its additional revenues. "I repeat, in order to ensure long-term stability of the main financial document for the country, it's important to make balanced decisions regarding cyclical revenues," Putin said at a meeting. He said that in order to have an effective macroeconomic policy it was important to take into account all the factors, and to be able to respond proactively to external risks. These are currently manifesting themselves strongly on global markets and within international economic relations.
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Stocks rally after Trump delays Iran military strike
The world markets reversed their course quickly on Monday, after U.S. president?Donald Trump announced that he would 'order the military to delay?any?"military strikes" against Iranian power stations and energy infrastructure. This eased uncertainty and fears over the consequences of a greater oil shock. Brent crude oil futures dropped sharply. The dollar fell against major currencies. Stock markets rallied. Government?borrowing rates fell. "Trump's five-day pause has triggered a?sort of TACO? movement in the markets, where all prices have moved lower and rates are rallying," said Evelyne GomezLiechti. Trump stated that the postponement was a result of productive discussions with Iran. Gomez-Liechti pointed out that headlines from Iranian media contradicting Trump's remarks tempered market movements. The overall positive sentiment still seems to be the dominant one for now. U.S. stock futures are 1.9% higher, signaling a strong opening on Wall Street. European stocks have gained 0.6% in the last few days, after having increased by up to 2%. On the government bond market, yields that had been sharply higher before Trump's comments were sharply lower. The two-year bond rate in Britain has gotten a reprieve, with the last decline of about 11 basis points. The 10-year Treasury yield was the last to fall?4bps, at 4.35%. The dollar had been broadly weak, after trading higher against most other currencies until the headline. The euro last stood at $1.156 after a recent low of $1.487. It's a jaw-dropping reaction to the recent meltdown. "We're seeing a knee-jerk response to these positive news," said Elias Haddad. If it is a legitimate de-escalation we may see a little more relief rally for risk assets. Brent crude oil fell over 7% to $103.5 per barrel.
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Ukraine has enough fuel for March but not April, according to a consultancy
Analysts at Enkorr said that the supply of diesel to Ukraine's market will be available until the end of march. Daily imports are up 3%, reaching a total of?nearly 17000 metric tons. However, supplies for?April remain uncertain due to rising prices. After Russian missile attacks virtually destroyed Ukraine's refining capability, the country has become almost completely dependent on imported fuel, sourcing supplies in western, central, and southern Europe. If imports continue at the current rate, the total monthly volume could be 522,000 tonnes in March, which is almost the same as March 2025. Enkorr reported that there was no 'clarity' on the situation for April. Suppliers were delaying their decisions to 'the last minute. The Ukrainian energy ministry didn't immediately respond to an inquiry for comment. The consultancy quoted a trader who said, "Talks continue, but no one has yet named specific volumes, guaranteed or premiums." A second trader said that the Middle East conflict had caused wholesale diesel prices to jump by more than 50% in a little over a month. The war could lead to further increases. Last week, Ukraine's deputy?minister of economy said that the country would be able to increase rapeseed?plantings by a third up to 1.5 million hectares in the event the conflict in Iran continues. This is because the demand for biodiesel fuels has been boosted by the rising global fuel prices.
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Starmer, UK's Starmer, calls for an emergency meeting to discuss the economy as Iran war threats mount
Keir starmer, the Prime Minister of Britain, called a national meeting to discuss the economic fallout from the war in Iran. The escalating conflict has led to the highest government borrowing costs since the 2008 global crisis. Early this week, the storm on financial markets intensified after Iran threatened to strike energy and water systems in Gulf countries if U.S. president Donald Trump followed through with his threat to attack Iran's electrical grid. Britain's dependence on imported gas, high inflation, and stretched public finances has pushed government bonds to a steeper decline than their international counterparts. The "Cobra" (a cabinet briefing room for national emergencies) meeting was scheduled to occur in the late afternoon of London time. Andrew Bailey, the governor of Bank of England, is expected to attend as are Starmer's Finance Minister, Foreign Secretary and Energy Secretary. Starmer, a reporter, said: "I want to discuss at Cobra every tool that the government has to deal with cost of living." The Finance Ministry said that energy security, the resilience of industries and supply chains will also be discussed. Rachel Reeves, the Finance Minister of Britain, said that it was too early to predict the economic impact the war would have on Britain. She has refused to support calls for "sweeping measures" on cost of living for households and instead said that she is considering more targeted assistance. Matthew Pennycook, the housing minister, told BBC that one option was to tackle "profiteering we could see from fuel retailers". The industry denies that it's happening. INFLATION SET TO SHOOT HIGHER Energy price shock could push Britain's rate of inflation back up to 5% this year. This would be a major setback for the economy, which is already struggling to grow. Reeves' efforts to fix the public finances could be derailed. Last week, the government announced a 53-million-pound package to help heat homes using heating oil. The pressure to take wider measures has increased the anxiety of bond market investors. On Monday, the cost of borrowing 10 year government bonds in Britain soared past the 5% level, which was last seen almost 20 years ago during the global economic crisis. The'majority' of the losses were confined to short-dated Gilts which are largely based on interest rate expectations. The bets on what the BoE will do next have changed dramatically. They are now heavily skewed towards rate increases and away from cuts, which were expected up until the day before the war. The market had priced in four quarter-point increases on Monday. The central bank announced last week that it was prepared to take action to maintain inflation at its 2% target. Some policymakers suggested that borrowing costs may need to be increased, but Bailey said it is too early to predict that rates will have to increase. The market for gilts is uneasy because of the calls to the government for financial assistance in light of the higher energy prices. This comes on top of the higher inflation. "A gilts rout, driven by overseas or speculative investors, can have a particular impact on the pound." Reporting by Andy Bruce Editing Jane Merriman and Peter Graff
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As Iran war shakes markets, RPT-Indian share prices fall and the rupee falls to a record low.
The rupee dropped to 93.98 per dollar against Indian stocks. Dollar on Monday, following declines in Asia as Middle?East conflict kept oil prices high and raised concerns about?global economic growth. Foreign investors have fled the market, and oil prices are surging. This has stoked inflation concerns and lowered the growth prospects of the country. The Nifty '50 fell by 2.6% on Monday to 22,512.65, while the Sensex dropped by 2.46% at 72,696.39 - both slipping into oversold territory. All 16 major sectors fell. The small-cap and midcap indexes each fell 3.9%. The volatility index (which tracks expected swings for 30 days) rose to 27,17 during the session. This is its highest level since early June 2024. As Middle East tensions increased, hopes for a de-escalation of the war in the near future dimmed. Brent crude was hovering around $113 per barrel, which is a challenge to India, as it is one of the largest oil importers in the world. The rupee has been under pressure due to high oil prices, and the fact that foreign capital outflows totaling nearly $10 billion were recorded in March. The sharp drop in stocks in the country is due to a spike in oil prices and a 'continued outflow of foreign capital, and a steep correction on rupee exchange rate, caused by the?Iran?war, said G Chokkalingam. He is founder and head?of research at Equinomics Research. Chokkalingam stated that "External Economic Conditions are Deteriorating Due to the War?and Could Become More Adverse in the Short-Term, Creating Significant Short-Term Pressure for Equities". HDFC Bank - the benchmark's largest weight - fell by?4.7% in one day and 11.7% in three sessions following the abrupt resignation from its part time chairman. Metals sub-index fell 4.8% in line with lower global prices.
Asia shares slide, yields climb as Gulf war rages
As the United States and Iran exchanged escalating threat, and Israel planned "weeks" of more fighting, oil prices went on another roller-coaster.
Iran warned on Sunday that it would attack?the water and energy systems of its Gulf neighbors if the?U.S. President Donald Trump has followed through on his threat to strike Iran's power grid within 48 hours. This effectively ends any hope for an early conclusion to the war which is now in its fourth weeks. Trump warned Iran that it had only two days to open up the Strait of Hormuz. The Strait is currently closed for all vessels and there are few prospects of naval protection.
Nikkei, the Japanese stock exchange, fell by 3.8%. This brings March's losses to more than 13%. South Korea's stock market fell 5.2% for a total of 12% in one month.
The MSCI broadest Asia-Pacific index outside Japan fell 2.5% while the?Chinese blue chip index dropped 1.9%.
Brent crude oil prices were once again volatile, with Brent closing at $112.62 per barrel and up 55% on the month. U.S. crude rose 0.8% to $99.98.
The U.S. has allowed Iranian and Russian oil from tankers to be sold in the near-term, but the risk of shortages over the longer term is pushing futures prices down. Brent for September, for example, was up $1 to $92.90, suggesting that high prices are here to stay.
Shane Oliver is the head of investment strategy for fund manager AMP. He said that oil prices could rise to $150 a barrel in upcoming weeks. "And because of the destruction to energy infrastructure, it will be longer before supply returns to normal."
It's worth noting, too, that previous oil shocks were spread out over many months as the full impact of rising oil prices became more apparent - about four months in 1973 and one year in 1979."
Analysts from HSBC reported that Singapore jet fuel prices were up 175% in this year, reaching a record high. Asian liquefied gas was also up 130%. Bunker fuel, which is used to transport goods by ship, has blown out and increased the cost. Fertiliser prices are also on the rise.
Fatih Birol, the head of the International Energy Agency, warned that the crisis is "very severe", and worse than both oil shocks in the 1970s combined.
SEND OFF RATE CUTTINGS
In Europe, EUROSTOXX50 futures and DAX Futures both fell 1.2% while FTSE futures dropped 0.8%. S&P 500 Futures on Wall Street fell 0.2% while Nasdaq Futures dropped 0.3%.
Energy inflation has caused markets to abandon their hopes of further monetary ease globally, and instead price in rate increases across the majority of developed nations.
Futures have erased expectations of?50 basis point easing by the Federal Reserve in this year. There is even a slight chance that the next move will be upward.
The hawkish sea change has caused bonds to fall and yields to rise, increasing borrowing costs for governments who are already facing deficits and debt.
While the rise in yields has made equity valuations look more stretched, the prospect of higher costs as well as softer consumer demand have clouded corporate profit outlooks.
Last week, bond yields increased by double digits around the world due to the energy shock and pressure on fiscal budgets caused by higher defense spending.
The yield on ten-year U.S. Treasury bonds has reached a high of 4.415% after a steady climb of 44 basis points.
As a result of the increased volatility on the markets, the U.S. Dollar has become a more reliable store of 'liquidity. The U.S. also is a net exporter of energy, giving it a comparative advantage over Europe and most of Asia which are net importers.
The euro fell a little to $1.1545 but was still a long way off major supports of $1.1409 or $1.1392.
Investors are wary of Japan intervening if the dollar breaks 160.00.
Gold fell 2.6% on the commodity market to $4,371 per ounce, as investors bet on rising interest rates worldwide. (Reporting and editing by Lincoln Feast; reporting by Wayne Cole)
(source: Reuters)