Oil prices experienced a sharp decline on Monday, with WTI crude dropping 16% and Brent crude falling 14%. The US dollar index closed below the 99 level. Improved risk appetite spurred a significant overnight rally in global equities, with the three major US indices rebounding between 6% and 10% from their March 30 lows. Gold reached a three-week high during the session but ultimately settled at $4,719.
Although short-term pressures have eased somewhat, the preconditions for a ceasefire and the negotiating demands of the US, Iran, and Israel remain far apart. There are doubts not only about the possibility of a prolonged truce but even about whether this Friday's scheduled talks will proceed. Iran has stated that holding peace negotiations is "unreasonable" following Israel's largest airstrike on Lebanon/Hezbollah since the conflict began, highlighting the fragility of the "two-week ceasefire agreement."
This may explain why the US Vice President remarked in a recent interview that ceasefires often begin in a state of confusion.
Key points of disagreement between the US and Iran include: whether the ceasefire agreement should encompass Lebanon, how to manage transit through the Strait of Hormuz, and how to address Iran's uranium enrichment. These complex issues create significant uncertainty for the negotiation outlook. Without obtaining tangible security guarantees, Iran is unlikely to relinquish its control over the Strait of Hormuz, a critical strategic asset.
Therefore, amidst conflicting and complex news flow, closely monitoring shipping traffic through the Strait and developments in the crude oil market may offer clearer insights into the situation's trajectory.
Data from vessel tracking firm Kpler indicates that daily ship transits through the Strait of Hormuz remain in the single digits, compared to an average of over 100 vessels per day before the conflict. As of this Tuesday, approximately 187 fully laden tankers remain in the Persian Gulf, equivalent to 172 million barrels of crude oil and refined products unable to be shipped. In the oil market, the spot price premium for Brent crude over the front-month futures contract remains high at $22, underscoring that the physical supply crunch has not been effectively alleviated.
Even if the Strait of Hormuz gradually resumes normal transit, the war-damaged energy infrastructure and production capacity in Gulf states will require months to restore. Consequently, oil prices may struggle to return to the pre-conflict range of $60-$70 per barrel. Furthermore, considering unpredictable US policy and Iran's control over the strait, a "war premium" is likely to persist in oil prices for an extended period. Sustained high oil prices could introduce volatility into the ongoing rallies seen in equities and gold.
Market attention turns to the US February PCE Price Index on Thursday, but the first indicator to potentially reflect the impact of energy price shocks will be Friday's March CPI data.
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