- Oil futures surge ahead of long Easter weekend but ease off highs
- Hopes of reopening of Hormuz help equities to halt selloff
- Dollar slightly softer ahead of March jobs report, gold slips again
Efforts to reopen Hormuz Strait boost sentiment
Oil futures rallied sharply on Thursday as panic about supply shortages gripped markets after US President Trump threatened to hit Iran ‘extremely hard’ in his Wednesday address to the nation. Hopes earlier in the week that the US was seeking to wrap up its military operations in the Middle East within two-to-three weeks quickly dissipated. But it was primarily the fresh reality check that even if the conflict were to conclude soon, supply disruptions in the energy market are likely to continue for some time, after Trump signalled that the US doesn’t need the Strait of Hormuz.
However, hopes of a solution for ending the blockade of the crucial oil passageway were rekindled later in the day. The UK hosted talks with about 40 countries on Thursday aimed at finding ways to restart energy flows through the Strait of Hormuz, discussing the option of using sanctions to pressure Iran. Meanwhile, Tehran continued to display that it holds the upper hand over the Strait after it said that it is drafting a protocol with Oman for the two countries to “monitor transit” through the vital shipping lane.
Whilst neither development guarantees that safe passage will be restored anytime soon, it is nevertheless an encouraging sign that there’s a vested interest by all parties to allow more traffic to flow through Hormuz, and this has brought some calm to the markets before traders take a break for the Western Easter celebrations.
WTI overtakes Brent, gold stumbles
This tepid optimism was reflected in Brent crude futures for June, which closed up by ‘only’ 8% as opposed to the 12.2% jump in WTI futures for May, pointing to a backwardation in the forward curve for oil futures. WTI’s stronger rally in recent days over Brent has also been driven by a rise in demand for US oil, as buyers rush to find alternative suppliers to Middle East producers.
By the end of the day, WTI stood at $112.32 a barrel versus $109.24 for Brent crude.
Commodity markets are closed on Good Friday, but gold did have a chance to recoup some of its steeper losses from earlier in the session, ending Thursday 1.7% lower at $4,675.67 to cap four days of gains.
Dollar eases from highs ahead of NFP
The improving sentiment weighed on the US dollar, which is trading slightly softer today following yesterday’s strong performance. Apart from worries about another major escalation in the Middle East, the greenback has been additionally boosted this week by positive indicators for the US economy. However, not all the strong data has been necessarily good news as the jump in the ISM manufacturing PMI’s price index in March suggests the impact of the Iran war is already being felt.
Still, with the oil panic easing somewhat, investors are once again pricing in a small chance of a year-end rate cut by the Fed. The recent Fedspeak signals that most policymakers are in agreement about keeping interest rates on hold for some time, but there does appear to be some diverging views on how much of a risk the Middle East conflict poses to inflation.
Hence, any surprises in either direction in today’s nonfarm payrolls report is bound to generate significant reaction. Analysts are expecting a rebound of 60k jobs in March after last month’s big drop, while the unemployment rate is projected to hold steady at 4.4%.
An unconvincing rebound in stock markets
Equities tracked the shifting sentiment, with Wall Street managing to erase its losses on Thursday. Although the Dow Jones still ended slightly lower, both the S&P 500 and Nasdaq 100 closed marginally higher, even with Tesla plunging more than 5% on disappointing vehicle delivery numbers for the first quarter.
Japan’s Nikkei 225 index led the recovery in Asia today, as most markets in Europe are shut for Good Friday.
But US futures have already turned negative. Aside from the ongoing caution about how long the oil and gas disruption from the Gulf will last, growing signs of stress in the private credit market could also be contributing to the jitters. It comes after Blue Owl Capital – a private credit investment firm – said it had to impose a cap in withdrawals after investors tried to pull $5.4 billion from one of its funds.