Rabobank's Senior Macro Strategist Benjamin Picton notes that Oil futures are lower after President Trump paused further strikes on Iran, reversing last week’s Brent surge above $100. Picton stresses that conflict in the Middle East, including Houthi attacks on Saudi infrastructure and uncertainty over the Strait of Hormuz, still poses significant energy security risks and could quickly re-tighten Oil markets.

Middle East tensions cap downside risks

"Oil futures are being offered this morning after President Trump on Friday declined to continue strikes on Iran."

"Nevertheless, President Trump’s threats of ‘massive attack’ late last week that saw Brent crude surge above $100/bbl, higher bond yields, and equities under pressure has now given way to a massive relax, with Brent below $92/bbl, equity futures pointing higher and sovereign yields lower across the board."

"To illustrate this point, the Wall Street Journal carried a story over the weekend regarding the escalating tit-for-tat between the Saudis and the Houthis that threatens to conflagrate into all-out war."

"Houthi attacks on Saudi Aramco infrastructure at the critical port of Yanbu (the Red Sea release valve for Saudi oil exports) over the weekend followed a declaration last week that Saudi Arabia’s Red Sea ports would be subject to a blockade that further threatens to starve energy-poor Asia of vital crude oil flows."

"Détente between Gulf states and Israel holds out the prospect of less fragile supply chains in the future, where oil flows West rather than East and Iran loses its leverage over the global economy, but that potential future is riddled with ‘ifs’, and solves none of our near-term problems."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)