Oil continues to exert an influence well beyond the energy market itself, Ole Hansen, Saxo Bank’s Head of Commodity Strategy, said in an analysis posted on the bank’s website on Thursday.
“More than any other asset currently, crude prices are shaping broader market sentiment through their impact on inflation expectations, central bank thinking, sovereign bond yields and the U.S. dollar,” Hansen said in the analysis.
“In the current environment, oil has effectively become the market’s main transmission mechanism,” he added.
Hansen noted in the analysis that cross-asset performance increasingly reflects this dynamic.
“Gold, despite persistent geopolitical uncertainty, has struggled to establish a sustained bid. Higher oil prices raise concerns about inflation persistence, lifting bond yields and the dollar while creating a less supportive environment for non-yielding assets,” he said.
“We are currently seeing an elevated inverse correlation between gold on one hand and oil, bond yields and the dollar on the other. Until that relationship changes, crude is likely to remain the dominant macro driver across markets,” he stated.
Hansen went on to note that recent price action highlighted the market’s sensitivity to political rhetoric and warned that markets increasingly appear trapped between alternating signals.
“The result has been substantial price volatility without delivering the one development that ultimately matters: a reopening of the Strait of Hormuz and a normalization of regional energy flows,” Hansen said.
Opposing Forces
In a market analysis sent to Rigzone on Friday, Naeem Aslam, CIO at Zaye Capital Markets, stated that the company sees oil “caught between two opposing forces – geopolitical supply risk is supporting prices, while weaker global demand expectations are limiting upside”.
“The current rise is being driven by doubts that peace talks and diplomatic progress can fully remove supply risks, especially with the Strait of Hormuz still central to global crude flows,” Aslam added.
Aslam outlined in the analysis that U.S. President Donald Trump’s comments added “another layer to the oil price ecosystem” and noted that yesterday’s economic data gave oil a mixed demand signal.
“The Q2 GDPNow estimate rose to 4.3 percent from 4.0 percent, well above consensus near 1.6 percent, while initial jobless claims came in at 209k versus 210k expected and 212k prior,” he said.
“Continuing claims stood at 1.782 million, and the four-week average fell to 203,000. These figures support oil demand because stronger growth and a resilient labor market usually mean more transport, freight, travel, and business activity,” he added.
“However, manufacturing weakness capped the bullish case, with Kansas City Fed Manufacturing falling to 8 from 10 versus 9 expected, and Philadelphia Fed Manufacturing dropping sharply to -0.4 versus +17.8 expected and +26.7 prior,” he continued.
Aslam went on to project in the analysis that today’s GBP Retail Sales month on month and USD Revised UoM Consumer Sentiment “will influence oil through demand expectations and the dollar”.
“Stronger data can support crude by pointing to healthier consumption, but it can also lift rate expectations and strengthen the dollar,” he highlighted.
“Weaker data can pressure oil through softer demand fears, unless geopolitical risk keeps the supply premium dominant,” he said.
Cumulative Supply Deficit
In a BMI report sent to Rigzone by the Fitch Group late Thursday, analysts at BMI, a unit of Fitch Solutions, highlighted that they are now forecasting Dated Brent to average $90 per barrel in 2026. They pointed out that this is “substantially above” the $81.5 per barrel they forecast for Brent futures.
The BMI analysts outlined in the report that their projections are consistent with their Country Risk team’s ‘Extension’ scenario for the U.S.-Iran conflict, which they said carries a 55 percent probability.
“This reflects the scale of the cumulative supply deficit – already above one billion barrels -the time required to repair damaged energy infrastructure across the region, and the six-to-eight week post-conflict normalization window we anticipate for the Strait of Hormuz before flows approach pre-crisis levels,” they said.
The analysts highlighted in the report that Dated Brent has gained 8.2 percent month on month, noting that it was trading at around $115 per barrel.
“While that represents a meaningful recovery, it sits below our May monthly average forecast of $125 per barrel and is tracking in line with our June projection of $115 per barrel – suggesting moderate downside risk to our short-term outlook if current price levels persist,” they noted.
The analysts stated in the BMI report that relative price weakness reflects both speculative and fundamental dynamics.
“On the sentiment side, optimism over a potential U.S.-Iran diplomatic resolution has weighed on the futures market,” they said.
“Given the structural linkages between Dated Brent and front-month futures, this has acted as a drag on physical prices,” they added.
“Fundamentally, large inventory draws, steep declines in crude imports and sharp cuts to refinery run rates particularly across Asia – have helped balance the prompt crude market and tempered benchmark prices,” they continued.
The BMI analysts went on to warn in the report, however, that “this coping strategy carries significant risks”.
“Reduced refinery throughput limits the flow of refined products to market, transmitting scarcity downstream to fuel markets and prices at the pump,” they pointed out.
“As refiners exit the spring shoulder season and northern hemisphere demand enters its summer peak, and as fuel stocks are progressively depleted, these pressures are likely to become increasingly acute,” they warned.
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