Oil trades on fear, not just barrels, as geopolitics and prediction markets take hold
[SINGAPORE] When even Goldman Sachs is tracking crypto-based prediction platform Polymarket to get a read on the risks facing oil markets, you know something's shifted.
On Monday (Jun 23), Goldman Sachs warned that Brent could hit US$110 a barrel if the Strait of Hormuz is blocked, citing Polymarket, showing how even prediction markets with low liquidity may be shaping sentiment.
But while some are treating this Manhattan-based market platform as a new kind of geopolitical barometer, others like Singapore continue to keep its doors shut on grounds that it's an illegal gambling site.
Regardless of where one stands, it says a lot about how oil is being traded. Less than a fortnight since Israel's airstrikes on Iran, markets appear to be not just reacting to fundamentals (supply and demand) but also probabilities.
At the heart of the oil markets' guessing game is whether Iran will move to shut down Strait of Hormuz – one of the world's most important waterways for fossil fuel transportation, particularly oil and liquefied natural gas. Over the weekend, Iran's Parliament reportedly approved its closure.
On Monday morning, Polymarket showed a 43 per cent chance that Iran would close the waterway before July. By evening, that probability had nearly halved and on Tuesday morning (Asia time), it plunged below 5 per cent after US President Donald Trump announced a 'complete and total' ceasefire between Israel and Iran.
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
The odds are likely to shift again to reflect the volatile times.
Oil prices have been swinging wildly. Iran's latest move, firing six missiles at US bases in Qatar, should have pushed prices up, but instead they slumped. The reason? The Strait of Hormuz remains open, and crude is still flowing.
This suggests that traders are no longer just chiefly reacting to supply but are also trying to read intent. History shows that during extended Middle East flare-ups, fear alone has added US$20 to US$30 a barrel – proof that sentiment can outmuscle fundamentals when geopolitics takes centre stage.
That's not to say fundamentals have left the building altogether.
There remain key factors that could blunt some of the upward pressure in the commodity's prices. For one, the Organization of Petroleum Exporting Countries and allies (Opec+) has room to pump more, suggesting that the oil cartel has both the capacity and motivation to respond if prices rise too fast. Global inventories aren't exactly scraping the bottom either while slowing economies are weakening energy demand.
Iran pumps about 3.4 million barrels of oil a day and still exports a significant volume of oil despite US sanctions, with much of it flowing to China. That trade keeps its economy afloat but also limits its ability to escalate. Closing the Strait of Hormuz would risk cutting off its own revenue lifeline.
This is what makes its next move hard to predict. Teheran has the capability to cause chaos, but also every reason to show restraint.
A prolonged oil rally is bad news for rate-cut expectations, especially in Asia where policymakers were hoping for some breathing room. If oil prices climb to US$110 to US$120 a barrel (under pundits' high-risk scenario) and stay there for over three months, analysts warn Asia could face a 'stagflationary shock'.
In that scenario, central banks may be forced to tighten policy instead of easing, worsening the slowdown. We've seen how that story plays out. And this may be the fear factor keeping markets on tenterhooks.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Times
29 minutes ago
- Business Times
Vietnam's death-row tycoon seeks Rothschild, UBS in S$46 billion rescue bid to save troubled local bank
[HO CHI MINH CITY] Facing death row for orchestrating Vietnam's biggest financial fraud, property mogul Truong My Lan is seeking government nod for a 12-year, 930 trillion dong (S$45.5 billion) restructuring plan that proposes the involvement of global financial heavyweights Rothschild, UBS, Alvarez & Marsal, and Singapore-based Greenmark Construction. According to recent local media reports, the proposal – submitted separately by Lan from jail and by her real estate group Van Thinh Phat (VTP) to authorities – outlines a roadmap to mobilise capital for property projects and restructure Saigon Joint Stock Commercial Bank (SCB), from which she embezzled 304 trillion dong. The roadmap includes asset recovery, project revenue generation, and strategic investor participation in a bid to remedy the losses and reduce Lan's sentence by repaying at least three-fourths of the embezzled money. On Jun 18, Lan, currently detained at the T17 Detention Centre in Ho Chi Minh City, held a working session with representatives of her group and two German advisory firms that have agreed in principle to provide US$3 billion to fund the proposed plan. In a May letter to authorities, she said her decades of real estate experience and deep knowledge of the 1,166 secured assets for loans from SCB put her in the best position to turn them into 'golden geese' – income-generating assets that could help the state recover its losses. The latest 12-year plan reflects a last-ditch bid to secure leniency, as Vietnamese law allows a death sentence to be commuted if at least three-fourths of the embezzled funds are repaid. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up Rothschild, Alvarez & Marshal, and UBS were invited as strategic partners for international capital mobilisation, while Germania Helvetica Group AG and Milcon Gulf are being tapped for their expertise in corporate and bank restructuring, according to VTP's proposal cited by online outlet VnExpress. Singapore-based Greenmark Construction also features among the invited partners, along with local property developers NovaGroup and Hung Thinh. Lan was sentenced to death in 2024 for embezzling billions of dollars, bribery, bond fraud, and money laundering. She has been ordered to repay 674 trillion dong to SCB and an additional 30 trillion dong to bond investors. The Business Times had reported that Lan's prior effort to secure foreign support saw Malaysian tycoon Vincent Tan, founder of the Berjaya Group, agree to acquire the Sterling Residence development. This was part of her broader asset recovery strategy but there has been no official announcement on the progress or outcome of that plan. A three-thronged plan Under the proposed remedy scheme, VTP and its group of investors will disburse an initial US$2 billion in capital immediately upon receiving government approval. This first phase aims to stabilise SCB's operations, ensure liquidity for deposited funds, repay overdue debts, supplement working capital, and fund the completion of several large-scale, viable projects. The second phase, spanning the next five years, will see investors deploy some US$8 billion raised from partners and investment funds to develop legally cleared projects, with the aim of generating revenue from these assets. In the final phase, over the following seven years, investors plan to raise additional financing from domestic and international lenders to support major development projects, projected to yield around 680 trillion dong in revenue. Key projects include prime real estate in Ho Chi Minh City, such as No. 87 Cong Quynh Street, No. 289 Tran Hung Dao Street, the Nguyen Hue-Amigo Quadrangle, and Mui Den Do (the Saigon Peninsula). During this period, VTP expects to use the generated income from the three phases to repay the special loans from the State Bank of Vietnam - the country's central bank – and fulfill other financial obligations. SCB had previously received a bailout of nearly US$26 billion from the central bank following a 2022 bank run, which was triggered by the arrest of Lan, the lender's de facto owner, Reuters reported in March. No further rescue from central bank VnExpress noted that under Lan's 12-year remedy plan, SCB would not require additional loans from the central bank. This differs from the earlier proposal made by Sun Group, which was mandated by the central bank in Nov 2023 to assist SCB, Reuters report indicated. In February this year, the developer submitted a 15-year rescue road map that would require special loans of up to 657 trillion dong from the central bank in the first year of restructuring the troubled lender, which could then start repaying the debts from year 14, subject to market conditions. In April, Dau Tu newspaper reported that the central bank was also drafting a plan to restructure SCB and seeking suggestions from relevant bodies, though details of the plan and its submission timeline were not disclosed. The central bank and government have consistently appealed to the private sector, particularly foreign investors, to support the troubled lender. Vietnam's standard foreign ownership cap in commercial banks is 30 per cent, recently extended to 49 per cent for selected lenders that have taken over struggling peers.
Business Times
37 minutes ago
- Business Times
Asia: Stocks rally as Iran-Israel ceasefire holds, oil claws back some losses
[HONG KONG] Most equities extended a global rally on Wednesday (Jun 25) after Iran and Israel agreed to a ceasefire that ended more than a week of hostilities, while the US dollar struggled to recover from a sharp drop stoked by bets on a US interest rate cut. However, wariness over the agreement by the Middle East foes helped oil prices climb, though they are still well down from their highs on Monday. Investors around the world breathed a sigh of relief after US President Donald Trump announced the ceasefire days after US forces bombed Iran's nuclear sites, which he said were 'completely destroyed'. The Israeli government said it had agreed to the US deal after achieving all of its objectives in the war with Iran, with Prime Minister Benjamin Netanyahu hailing a 'historic victory' after 12 days of bombing. Stocks surged and oil tanked on the news, and the optimism rolled into Wednesday, with Hong Kong, Shanghai, Sydney and Singapore leading the gains across Asia. Tokyo edged down. Oil prices later rose, with both main contracts up more than 1 per cent. 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 However, they are still down around 16 per cent from the highs hit Monday in the first reaction to the US bombing of Iran and before the ceasefire announcement. The mood was also helped by Fed boss Jerome Powell choosing not to pour cold water on the prospects of a rate cut. In closely watched testimony to Congress, he said that 'if it turns out that inflation pressures do remain contained, then we will get to a place where we cut rates sooner rather than later'. While he said: 'I don't think we need to be in any rush because the economy is still strong', the comments indicated a flexible tone. They also came after Fed governors Christopher Waller and Michelle Bowman suggested officials could reduce borrowing costs next month. The US dollar tumbled against its peers and remained under pressure against the yen, pound and euro in early Asian trade. 'The market staged a full-throttle risk-on revival, launching global equities into the stratosphere as oil prices cratered and rate-cut bets gained momentum,' said SPI Asset Management's Stephen Innes. 'With the Middle East truce – however duct-taped and temperamental – holding long enough to calm headlines, traders pulled the ripcord on the fear trade and dove headfirst into equities. 'Trump's... scolding of Israel and Iran added ice water to the fire, or at least enough jawbone to muzzle the Middle East combatants for now.' AFP
Business Times
an hour ago
- Business Times
China seizes moment to globalise yuan as US dollar doubts mount
[BEIJING] China is launching a sweeping campaign to promote the yuan's global role, seizing what officials see as a rare strategic opening. With the US dollar facing multiple challenges, Beijing is accelerating its long-standing campaign to reduce global reliance on the world's reserve currency. What sets the latest push apart is timing: Chinese policymakers see erratic US decision-making and geopolitical tensions as the most favourable backdrop in years to promote the yuan. The latest measures aim to not just facilitate trade but also open China's financial markets and embed the yuan more deeply in investment flows. They include easing capital controls, expanding cross-border payment systems, and launching new financial products to attract foreign investors. Beijing's hope is that a more internationalised yuan may reshape trade and global finance and challenge the US dollar's dominance in reserve portfolios. 'The measures to further integrate China with the global financial system feel like steps in the right direction, as China wants to make sure that the yuan is in the conversation of important global currencies,' Lynn Song, chief Greater China economist at ING Bank, said. Role in monetary system In a speech last week, Chinese central bank governor Pan Gongsheng envisioned a new global currency order with a reduced role for the US dollar. He outlined a vision in which China's financial markets are more open and the yuan plays a central role in the world's capital flows. To push that vision, the People's Bank of China plans to establish an international operation centre for the digital yuan in Shanghai. It's also exploring the launch of the country's first domestic currency futures, which could compete with similar hedging tools in offshore markets such as Singapore and Chicago. 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 In Hong Kong, a fast payment system was launched over the past weekend. It allows residents to wire payments in the yuan or Hong Kong dollar to the mainland for trade and services, further integrating the two markets. The city's exchange is also expected to add yuan-denominated counters to the southbound stock link. Crypto-currency linkages are on the table as well. Hong Kong's Secretary for Financial Services and the Treasury Christopher Hui said recently he will not rule out the possibility of linking stablecoins with the yuan, though he noted risks, exchange rates, monetary policy and other factors would have to be considered. His comments came after the US Senate passed legislation on a US dollar-pegged stablecoin and Hong Kong's approval of its own stablecoin regulatory framework in May. China is also taking steps to further facilitate capital flows by opening more domestic trading products to foreign investors later this year. Authorities plan to raise quotas for local residents to invest their yuan in overseas securities, which would increase the currency's international circulation. 'China could be seizing the opportunity to promote RMB internationalisation,' Xiaojia Zhi, an economist at Credit Agricole CIB said, adding further steps, such as deepening the offshore yuan liquidity pool, could sustain the momentum. China's own payment system, Cips, is also gaining traction. It expanded recently to cover more foreign banks including United Overseas Bank, Bangkok Bank and First Abu Dhabi Bank. For the first time, Cips' overseas participants cover offshore yuan centres in Africa, the Middle East, Central Asia and Singapore. These are set to increase yuan settlements in China's cross-border transactions, where the currency has already overtaken the US dollar in recent years. While the Chinese currency still accounts for just 2.2 per cent of global reserves, its share in China's cross-border transactions has already overtaken the US dollar. In the nation's goods trade, yuan settlement stood at 26 per cent in May and could rise to 40 per cent by year-end, according to Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group. Economic headwinds Still, China faces challenges. An economic slowdown, deflationary pressures and lower bond yields have complicated efforts to push the yuan forward. 'On the fundamental level, wider international use of yuan rests on a robust economy and further progress in capital account convertibility,' Morgan Stanley economists led by Robin Xing wrote in a note last week. BLOOMBERG
