"As the US-Iran ceasefire approaches its end, Brent crude oil prices have surged over 5%, signalling potential volatility in global markets. Investors brace for uncertainty as geopolitical tensions rise and President Trump adopts a more aggressive stance.
Image: Noah Martin / Various Sources / AFP
As the clock ticks down on the ceasefire between the United States (US) and Iran, Brent crude oil prices surged by more than 5% to above $95 per barrel on Monday.
Uncertainty loomed over global markets as investors braced for potential volatility following Iran's weekend announcement that it will not engage in talks with the United States until the current ceasefire expires on Tuesday.
This development has prompted President Trump to adopt a more aggressive stance, raising eyebrows and concerns on Wall Street and beyond.
On Friday, Wall Street celebrated a record week, with the S&P 500 ending the trading session up by 1.2%.
Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank said that last week was marked by a questionable rally on hopes that peace was just around the corner, but weekend news dampened that optimism.
The US seized an Iranian cargo ship that tried to run its blockade, prompting retaliatory action from Iran.
Ozkardeskaya said, "The week opened on a mixed note with many unanswered questions. The Strait of Hormuz is reportedly closed again, Iran is not happy with the US blockade and even less with a ship being seized, and is no longer willing to attend the upcoming negotiations until the blockade is lifted. Donald Trump continues to threaten to destroy the country’s power plants and bridges."
"As the conflict drags on with no clear resolution in sight, investors appear to be getting used to volatility, and the idea of sustained volatility in the coming weeks/months as well as trying to look beyond the disruptions. While bypassing the energy shock implications for global economies remains risky, part of the focus will clearly shift to earnings, as markets look for a breather from war-driven headlines," Ozkardeskaya said.
Ozkardeskaya added that it will likely take a few months for higher energy prices to filter through to inflation data.
He said, "Policymakers globally have turned somewhat less hawkish in recent weeks. Officials at the European Central Bank and the Bank of England have said they are closely monitoring price pressures, but are moving away from their earlier tighter policy stance for the upcoming meetings."
Andre Cilliers, Currency Strategist at TreasuryONE said that the US dollar edged to its highest level in a week, with new US-Iranian tensions and fading hopes for a peace deal in the Middle East, sent investors back toward safe-haven assets.
"The Rand traded as low as R16.13, but has now completely reversed these gains as fears of the war being extended linger. The Rand is currently trading at R16.40 with traders watching developments in the Middle East. Local CPI data is due out on Wednesday, which could have a major impact on what the SARB MPC does next," Cilliers said.
He said that Gold prices fell on Monday morning, due to the firmer Dollar, while the Strait of Hormuz was closed again.
"That pushed oil prices higher and revived inflation fears. Gold was down 0.85% at $4,787.65 per ounce. The price of Brent crude jumped as rising tensions in the Middle East kept shipping in and out of the Gulf to a minimum, with traders holding on to hopes the war might end," Cilliers said.
Bianca Botes, Managing Director at Citadel Global said, "As the new week dawns, US futures have turned negative, dipping by 0.6%. The mood among traders has shifted as geopolitical tensions simmer on the horizon."
Botes further said, "The geopolitical landscape is becoming increasingly complex, and investor sentiment is understandably cautious. We are at a pivotal moment where communication can either bring stability or escalate tensions further."
According to Head of Client Group, Schroders South Africa, Philip Robotham, the next couple of months will show very large global oil inventory draws; in some regions, inventories will still reach critical levels. Tankers will start moving, but oil fields and oil refineries are still shut.
Robotham said, "Energy security is the priority for all major consuming nations. The investment cycle is therefore expected to be very intensive over the next few years. We estimate that oil-exposed energy equities are discounting between $60/bl and $70/bl long-term. We think that a discounted oil price of between $75/bl to $80/bl is more appropriate, given that this is the minimum price needed for any oil project sanction."
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