Oil: Risk premium builds on Hormuz threat – MUFG

FXStreet Insights Team FXStreet

MUFG’s Lee Hardman highlights that Brent briefly spiked above USD 82 before slipping back under USD 80 as traders assess Middle East supply risks. He notes tanker traffic through the Strait of Hormuz has largely halted and expects a geopolitical risk premium in Oil prices to persist, with potential macro consequences skewed against Asia and Europe.

Strait of Hormuz disruption drives risk premium

"The price of Brent initially jumped to a high of USD82.37 overnight but has since dropped back below USD80/barrel in response to heightened fears over the potential disruption to global oil supply."

"According to Bloomberg, tanker traffic though the Strait of Hormuz has largely halted, with a self-imposed pause in place by shipowners and traders as the conflict spreads within the Middle East."

"The Strait of Hormuz is an important choke point for the global economy given that about a fifth of the world’s oil and liquefied natural gas typically flows through every day."

"For now takers are continuing to pile up outside the waterway as companies wait for clarity on the security situation."

"Market participants are likely to continue to price in a geopolitical risk premium into the price of oil for the foreseeable future."

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

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