|

Oil: Supply shock sustains inflation risks – Rabobank

Rabobank Senior FX Strategist Jane Foley notes that while risk sentiment has improved and the Dollar’s safe-haven bid has faded, the physical Oil market tells a different story. With the Strait of Hormuz closed, she expects Oil flows to recover only to 80% of pre-war levels by late August, implying persistent inflation and demand disruption risks for energy importers.

Strait of Hormuz closure curbs flows

"It is, however, a different story in the physical oil market. The closure of the Strait of Hormuz suggests supply constraints are real and, RaboResearch forecasts that even if the war ends this month, oil supplies through the Strait will only be back at 80% of pre-war levels by late August."

"This suggests that the implication of the war for inflation and demand disruption is unavoidable."

"As energy importers, both the UK and the Eurozone are susceptible to the negative economic impacts of the spike in oil and gas prices. The terms of trade of both economies will worsen and inflation will rise."

"That said, within Europe some countries are more vulnerable to energy related price pressures than others, dependent on their energy mix. This has been reflected in bond yields across Europe in recent weeks."

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

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD consolidates above 0.7000; remains close to monthly top

AUD/USD holds steady above 0.7000 during the Asian session on Friday, trading just below the previous day's monthly low amid diverging forces. A hawkish RBA continues to support the Aussie, while the recent decline in US bond yields keeps the US Dollar depressed near a three-week low. However, oil-driven inflation fears reinforce Fed hike bets, which, along with geopolitical risks, could benefit the safe-haven buck and cap the currency pair.

USD/JPY bounces off one-month low; climbs to 157.00 amid reviving USD demand

USD/JPY rebounds from the 156.00 neighborhood, or a one-month low touched during Friday’s Asian session, with bulls looking to extend momentum beyond 157.00 amid the emergence of some US Dollar buying. Meanwhile, Japan's National CPI rose to a nine-month peak and reaffirmed BoJ rate-hike bets, which could support the Japanese Yen and cap gains for the currency pair.

Gold treads water around $4,000

Gold prices maintain its offered stance in place at the end of the week, hovering around the key $4,000 threshold per troy ounce. The persistent selling bias in the precious metal comes amid decent gains in the US Dollar and an acceptable rebound in US Treasury yields across the curve, all alongside further upside traction in crude oil prices.

Week ahead: Central bank and earnings bonanza could roil markets

After joining the rate-hike club in September, the Federal Reserve looks set to stand pat in October, waiting to assess more data before deciding to hike again. Whilst this isn’t an unusual move for a central bank, it somewhat contradicts Fed Chair Kevin Warsh’s new mantra of data dependency and zero forward guidance.

CFTC Report: WTI rally runs ahead of positioning
The week in one sentence: WTI prices surged while speculative longs were cut in the week to October 20, creating the clearest price/positioning divergence. Sterling and the Canadian Dollar led the constructive currency shift, while Yen longs also rebuilt. Speculators turned less constructive on the WTI, reducing their net exposure to around 89.3K contracts.
What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.