When asset classes that are “supposed” to move together diverge, it gets my attention. The markets are trying to tell me something.
Which is what happened with stocks and oil on Thursday, April 2, after President Donald Trump’s speech on the war with Iran.
Paul Krugman points out that oil at sea at the start of the Iran war provided a price buffer. But that buffer is about to run out. Deliveries to Asian markets will end this week; deliveries to Europe will end next week.
U.S. oil prices ended Monday’s session above $100 a barrel for the first time since the US and Israel launched a war against Iran as President Donald Trump threatened further escalation of attacks, including on critical energy infrastructure. West Texas Intermediate futures rose more than 3% to settle just below $103 a barrel, the highest since July 2022. Global benchmark Brent, meanwhile, is on track for a record percentage gain in March. And average U.S. retail gasoline prices are hovering just below $4 a gallon.
Europe could face a shortage of energy and fuel as soon as next month without a reopening of the Strait of Hormuz, Shell CEO Wael Sawan, said at an energy conference in Houston. Without a return of crude deliveries from the Gulf to global buyers via the crucial Strait, Europe could face shortages of fossil fuels within weeks, according to Sawan.
So who to believe? For half of Monday, financial markets believed President Donald Trump’s statements to reporters told that the United States and Iran were engaging in “very strong talks” toward ending the war. The talks he said had produced “many, like 15 points,” of agreement. He said he was postponing until Friday his threat to attack Iranian power plants while talks take place. The Standard & Poor’s 500 gained 2.2% on the reports. trades who had placed their TACO bets were happy. (TACO stands for Trump Always Chickens Out.) Those gains even survived a denial from the speaker of Iran’s Parliament that any such negotiations were underway. He accused President Trump of issuing false statements to calm rattled energy markets. Iranian officials said their country would continue to fight. But as the day’s trading wore on, the gains diminished.
Israel carried out the strike on Iran’s South Pars natural gas field.. Several phases of the South Pars gas field were hit by projectiles and taken offline to prevent fires from spreading, Iran’s semi-official Fars reported, citing the governor of Asaluyeh. South Pars petrochemical facilities were also hit.
The attack on South Pars marks the first time Iran’s upstream oil and gas facilities have been targeted in this war. Israeli media are reporting that the attacks were carried out with the consent of the U.S.
Iran has begun laying mines in the Strait of Hormuz,
Today, the International Energy Agency (IEA) and its 32 member countries agreed to a record release of 400 million barrels of oil from emergency strategic reserves. And the price of Brent crude, the European benchmark went up, closing at $92.93, up 5.84% on the day. This isn’t how it’s supposed to work. When 32 IEA members, including the United States, the European Union, South Korea, and Japan agree to supply the market with an extra 400 million barrels of oil, oil prices are supposed to go down right? The fact that they went up today, instead, tells investors exactly how pessimistic oil traders are about an end to the Iran war.
Only two vessels not linked to Iran or Russia have made the tun through the strait of Hormuz, according to maritime records, since President Donald Trump said he would “ensure the free flow of energy to the world.”
the problem is that pesky phrase “if sustained.” Trouble is no one knows how long fighting will go on, or what exactly constitutes sustained,” nor how long the effects, resulting from damage to energy infrastructures, might last.
The Standard & Poor’s 500 began the day with a 1.5% loss. Brent crude soared to $120 a barrel. The moves were totally reasonable. Investors and traders has feared that the war with Iran would spiral into a more destructive and wider regional war. And recent attacks on oil infrastructure in the Middle East and on water desalination plants on both sides of the Persian Gulf provided ample evidence that those fears were justified. And then President Donald Trump gave a phone interview with CBS News in which he said that the war with Iran was progressing ahead of schedule. Trump told CBS News that the Iran war is “very complete, pretty much.” The president also reiterated that the conflict is “very far” ahead of his four-to-five-week timeline, adding that he was considering taking over the Strait of Hormuz. And markets reversed. The S&P 500 Index closed 0.8% higher. Meanwhile, the tech-heavy Nasdaq 100 Index jumped 1.3%, returning to the green after wobbling between gains and losses throughout the session. Brent crude reversed course, dropping 1.6% to $91 a barrel. And then, after the markets had closed, President Trump said in a speech to Republican lawmakers in Florida that “we have won in many ways, but not enough. We go forward more determined than ever to achieve ultimate victory that will end this long-running danger once and for all.” I’m interested in seeing how the financial and commodity markets react tomorrow morning.
Are the moves by the Trump administration to assure owners of oil tankers to ship their cargoes through the Strait of Hormuz even vaguely enough?
The name of the game now for investors is projecting how long the war with Iran will go on. And how long the Strait of Hormuz will stay shut to oil tankers.
COLDWMTNVDACMIPAASTBFIGOVFXY
UUPBABA
