Oil prices rise as investors assess Iran-Israel ceasefire
Oil prices climbed on Wednesday as investors assessed the stability of a ceasefire between Iran and Israel, but held near multi-week lows on the prospect that crude oil flows would not be disrupted.
Brent crude futures rose 85 cents, or 1.3 per cent, to $67.99 a barrel at 0341 GMT, while U.S. West Texas Intermediate (WTI) crude gained 87 cents, or 1.4 per cent, to $65.24.
Brent settled on Tuesday at its lowest since June 10 and WTI since June 5, both before Israel launched a surprise attack on key Iranian military and nuclear facilities on June 13.
Prices had rallied to five-month highs after the U.S. attacked Iran's nuclear facilities over the weekend.
"Global energy prices are moderating following the Israel-Iran ceasefire. The base case for our oil strategists remains anchored by fundamentals, which indicate sufficient global oil supply," said JP Morgan analysts in a client note.
U.S. airstrikes did not destroy Iran's nuclear capability and only set it back by a few months, according to a preliminary U.S. intelligence assessment, as a shaky ceasefire brokered by U.S. President Donald Trump took hold between Iran and Israel.
Earlier on Tuesday, both Iran and Israel signalled that the air war between the two nations had ended, at least for now, after Trump publicly scolded them for violating a ceasefire.
As the two countries lifted civilian restrictions after 12 days of war - which the U.S. joined with an attack on Iran's uranium-enrichment facilities - each sought to claim victory.
"The Israel-Iran ceasefire is likely to prove fragile. But so long as both parties show themselves unwilling to attack export-related energy infrastructure and/or disrupt shipping flows through the Strait of Hormuz, we expect bearish fundamentals in the oil market to continue ... from here," said Capital Economics chief climate and commodities economist David Oxley.
Direct U.S. involvement in the war had investors worried about the Strait of Hormuz, a narrow waterway between Iran and Oman, through which between 18 million and 19 million barrels per day (bpd) of crude oil and fuel flow, nearly a fifth of global consumption.
Investors awaited U.S. government data on domestic crude and fuel stockpiles due on Wednesday.
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CNA
37 minutes ago
- CNA
Stocks edge up, dollar steady as ceasefire buoys confidence
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CNA
an hour ago
- CNA
Oil rises 2% as investors assess Iran-Israel ceasefire, Fed outlook
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Business Times
an hour ago
- Business Times
Why global imbalances do matter
NOBODY can know either the future course of the new war in the Middle East or its possible economic effects. I wrote what I could on this in a column entitled The Economic Consequences of the Israel-Hamas War, on Oct 31, 2023. The big question, I argued, was whether the conflagration would extend to oil-related production and transport from the Gulf region. This region contains 48 per cent of global proved reserves and produced 33 per cent of the world's oil in 2022. It also has a chokepoint on exports at the Strait of Hormuz. These realities remain. The question is now mostly about Donald Trump: Does he know how to end this war? It is a question raised in other areas, too, notably the interaction of his trade policy with his fiscal policy. The aim of the former is to reduce, if not eliminate, trade deficits. The aim of the latter is to run huge fiscal deficits. These two objectives are incompatible. Large external deficits mean, by definition, that the country is spending more than its income. Since the US economy is running close to its potential, with an unemployment rate at only 4.2 per cent, no quick way to raise incomes still further exists. So reducing the external deficit will require reductions in national spending. The obvious way to do this would be with a sustained lowering of the fiscal deficit, via higher taxes and lower spending commitments. That would allow the Federal Reserve to lower interest rates, which Trump would welcome. It should also weaken the dollar, which should help increase production of tradeable goods and services. So, apart from the fact that Trump adores low taxes and high spending, why not go for this? The answer is that it could be worse than just politically difficult. The issue is illuminated by examination of sectoral savings and investment balances in the US economy since the early 1990s. Crucially, these have to add to zero, because domestic savings plus net foreign savings (that is, the net capital inflow) equals domestic investment. On average, the US household and corporate sectors had surplus savings of 3.5 per cent and 1.6 per cent of gross domestic product, respectively, from 2008 to 2023. Even from 1992 to 2007, they were close to balance. So, on a net basis, the US private sector does not need foreign savings. The dominant net borrower in the US economy is the federal government. This analysis suggests that the benefit to the US of its persistent net capital inflows is the ability to have a larger fiscal deficit, and so grow its public debt. This does not look like a good bargain. But if the government cut its deficit, while the external inflow continued, the outcome could be to drive the private sector into deficit, either via a slump in its income or a surge in its spending. The former means a recession. The latter means asset price bubbles. Broadly, the tendency for large and sustained inflows of foreign capital to produce wasteful borrowing, slumps, or both, is the biggest problem it creates. In a recent paper on the issue for the Carnegie Endowment, Michael Pettis and Erica Hogan focus on another downside: they argue that suppression of consumption in China and other countries leads to huge trade surpluses and so to large deficits abroad. Countries running these trade deficits, such as the US and UK, end up with smaller manufacturing sectors than those with surpluses. But, Paul Krugman argues, even eliminating the US trade deficit would only increase US manufacturing value added by 2.5 percentage points of GDP. Trade imbalances themselves are not so important. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Pettis and Hogan also show that the size of the manufacturing sector is associated with the level of savings. But the difference between the Chinese and US average shares of manufacturing in GDP between 2012 and 2022 is 17 percentage points (28 per cent in China to 11 per cent in the US). This is far bigger than the gap between the respective trade balances. The explanation must lie with the composition of demand. The investment that the high savings finance creates heavier demand for manufactured goods than does consumption. In sum, the main reason to worry about global trade imbalances is not the impact on manufacturing, which, for a country like the US, is a second order issue, but rather on financial stability. This is also why fiscal adjustment needs to be a co-operative venture when the participants are such big economies. Americans who focus on the fiscal deficit alone ignore its impact on global demand. The US is likely to fail to cut its external deficit just by raising tariffs, unless protection is set at totally prohibitive levels. Otherwise tariffs just shift the composition of production, from exportables towards import substitutes, with little effect on the trade balance. Yet if it tried, instead, to close its external deficit by eliminating its fiscal deficits, it could generate a significant economic slowdown. The US is not a small country: it has to take global repercussions into account. If it wants to accelerate a global discussion of imbalances with a policy intervention, the obvious one would not be tariffs but a tax on capital inflows. That would at least target excess foreign lending, though the entity that needs to wean itself off that is the US government. This might, if launched, lead to a global discussion of the kind discussed in a thoughtful paper by Richard Samans for the Brookings Institution. The discussion, he suggests, should focus on fiscal, monetary, development and international trade policies. This makes sense. But it also assumes an intelligent and co-operative approach to policy. That looks unlikely. Brandishing a stick can launch a global debate. But it is what follows the threats that matters. FINANCIAL TIMES
