(March 11): Oil climbed at the start of trading, recouping part of its steepest one-day slide in four years, as uncertainty over the outlook for crude supplies continues to rattle markets. Asian stocks are set to open higher.
US crude advanced more than 5% in early hours, after plunging 12% on Tuesday as prices whipsawed on rapidly shifting comments from the Trump administration over the war in Iran. Equity futures pointed to modest gains in Sydney and Hong Kong, while Tokyo is set for a stronger open, after the S&P 500 wiped out an advance.
The swings in energy markets added to pressures on Treasuries stemming from jitters over the outlook for the Iran conflict, a flurry of corporate debt sales and a weak US$58 billion US auction. Fears that a deeper supply shock would rekindle inflation and slam the brakes on the economy have kept a lid on bonds.
“Traders continue to get whipsawed by intense price action and extreme volatility in crude, with headlines driving sharp intraday swings,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “It very much feels like a market trading in the fog of war, reacting in real time as events unfold, rather than one moving in an orderly fashion.”
The US and Iran escalated attacks in the 11th day of the war, while the White House said it’s keeping open options to address energy volatility. It also confirmed the US has not escorted an oil tanker through the Strait of Hormuz, contradicting a now-deleted social media post by Energy Secretary Chris Wright claiming that it had.
President Donald Trump warned Iran against laying mines in the key energy chokepoint after news reports suggested it was either preparing to, or had already begun doing so. Meanwhile, Group of Seven nations asked their main energy agency to prepare scenarios for the release of emergency oil reserves.
See also: Asian stocks track US declines with oil in focus
Crude prices are almost 40% higher since the beginning of the year as the effective closure of the strait, which typically handles a fifth of global oil flows, forces producers to curtail output. Tuesday’s move lower came on expectations that world leaders would intervene before the worst of any supply shock emerges.
“While traders welcomed the sudden drop in oil prices, the geopolitical backdrop remains far from stable, leaving markets vulnerable to further volatility,” said Fawad Razaqzada at Forex.com. “Ultimately, the biggest factor for markets will be whether energy supplies from the region resume normally.”
The S&P 500 fell 0.2%. Oracle Corp shares bounced in after-market trading after the company reported better-than-expected revenue. West Texas Intermediate traded near US$87 a barrel after settling around US$83 on Tuesday. Gold was little changed. The yield on 10-year Treasuries rose six basis points to 4.16%.
See also: Stocks slide, crude advances as Iran war extends
“The conflict in the Middle East and related headlines are still the major source of fluctuations in markets, with equities, oil, and rates all spending another day trying to find equilibrium,” said Sameer Samana at Wells Fargo Investment Institute. “We would continue to try and look through those near-term headlines.”
Investors betting on a hawkish response to rising oil prices could be misreading the Federal Reserve, according to Bank of America Corp, which warns that supply shocks can also result in periods of stable interest rates and even deep cuts.
An energy shock isn’t necessarily hawkish, US economist Aditya Bhave noted, because it can create tension between the central bank’s mandates to promote stable prices and support employment.
As Wall Street was rattled by oil volatility, traders geared up for inflation data due after the latest jobs report challenged perceptions the labour market is stabilising.
The consumer price index report on Wednesday is projected to show a core inflation measure, which strips out volatile food and energy costs, rose just 0.2% last month. That would suggest some easing in price pressures before the outbreak of the war in Iran introduced new uncertainty about the inflation outlook.
While the report has lost some of its importance given recent moves in energy prices, any additional signs of inflationary pressures could sound the “death-knell” for rate cut expectations this year, according to David Morrison at Trade Nation.
Uploaded by Isabelle Francis
