Oil: Conflict-driven volatility and positioning – BNY

BNY’s Geoff Yu highlights growing fragility in global markets as President Trump declares the Iran ceasefire over and U.S. strikes in the Strait of Hormuz reignite Oil volatility. Brent, WTI and Middle Eastern benchmarks have jumped around 5%, yet inflation expectations remain intact and positioning data show core energy and inflation hedges in place, limiting broader disruption for now.

Ceasefire doubts lift crude benchmarks

"Markets are starting to look fragile. President Trump is now openly questioning the durability of the ceasefire, while exchanges of fire in the Strait of Hormuz are intensifying. For markets and the global economy, the prospect of a swift return to pre-conflict energy and goods flows through the waterway is fading."

"The immediate oil reaction has been significant, roughly 5%, depending on the benchmark, but not yet large enough to derail the improvement in inflation expectations. Still, our positioning data, from dollar exposure to flows into inflation-protected equity sectors, suggest core inflation hedges never really disappeared. Beyond the rhetoric and the real escalation in hostilities, a return to the March and early-April backdrop now looks highly unlikely."

"Oil will be the judge of whether this turns into a true escalation. Any accompanying move in yields or policy expectations will determine whether current positioning proves fragile, or resilient."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)