July has witnessed a dramatic re-escalation of the Iran conflict with markets going from too optimistic to hopefully too pessimistic. The ceasefire breakdown has actually driven the sharpest leg of the oil price rally, making the resilience by equities so far pretty impressive. Things improved on Friday and over the weekend but we’ve heard it all before:
- Brent crude fell ~4% on July 24 to settle near after reports emerged that oil was still managing to traverse Middle East trade routes despite the escalation.
- Over the weekend, The US paused an almost two-week run of strikes against Iran for a 2nd night while Iran said it was refraining from any retaliatory attacks and held talks with Oman over the Strait of Hormuz.
The July story is effectively a market that’s evolved from pricing in a peace dividend to pricing a full re-escalation in under three weeks — the fastest round-trip of that magnitude in the oil market since the COVID crash and recovery in 2020.
- We can see crude oil rotating in the US$80-100 region over the coming days as the US-Iran conflict plays out. Oil prices are down ~5% this morning.
MM is neutral towards Brent Crude around US$97
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