Oil Supplies in Focus Ahead of Stock, Bond Open

g[3gmkq942bsl783w6esqqrg_media_dl_1.png ICE, Bloomberg

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(Bloomberg) — Oil dominated investor attention ahead of the reopening of trading Sunday night in New York after US strikes near Iran’s key export hub at Kharg Island heightened fears of disruptions to Middle East crude supplies.

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The surge in energy prices since the war broke out more than two weeks ago has rippled across asset classes, pushing Treasury yields higher on inflation fears, lifting the dollar and weighing on global equities.

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Trading in US equity futures, Treasuries and oil resumes at 6 p.m. Sunday in New York.

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The US bombing of military targets on Kharg Island — from which Iran exports almost all its oil — threatens to inject fresh volatility into energy markets already coping with the wildest swings in Brent crude prices in decades of futures trading. 

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“I would think this significantly heightens the risk of higher-for-longer energy prices and meaningfully raises inflation and growth risks,” said Justin Lin, an investment strategist at Global X ETFs Australia. “The resumption of energy flows is only possible if infrastructure remains largely intact.”

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Market stress is building at the fastest pace since April’s tariff shock. A Bank of America Corp. index of options-implied volatility across equities, rates, currencies and commodities jumped last week to a level just below its peak reached during the turmoil triggered by President Donald Trump’s rollout of aggressive levies 11 months ago.

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Brent crude, the global benchmark, has surged 40% since the end of February, prompting investors globally to reassess risk with the fighting now in its third week. Global stocks have slid more than 5% since the war broke out, led by Asia markets. The S&P 500 Index has declined three straight weeks and sits 5% below a record reached in January. In fixed income, 10-year Treasury yields ended Friday at 4.28%, up more than 30 basis points in March.

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In early trading in Sydney at the start of the week, major currencies were little changed against the US dollar, which has emerged as a key haven during the war. The Bloomberg Dollar Spot Index has climbed to the highest level this year. 

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The impact of the Kharg Island strikes on shipping and storage will be in focus across asset classes after President Trump said military facilities on the Persian Gulf island were “obliterated,” while oil infrastructure was spared.

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Trump said over the weekend that Iran is ready to negotiate an end to the war, which has frozen shipping in the Strait of Hormuz, but that the US wants better terms. He called on other nations to defend the waterway, through which about a fifth of the world’s oil exports flow. Separately, Iranian Foreign Minister Abbas Araghchi said the Islamic Republic hasn’t asked for talks or a ceasefire.

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After currency markets, oil futures will be among the first assets to react when trading resumes Sunday evening in New York.

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“Trump’s call to reopen the Strait of Hormuz may offer some psychological reassurance, but markets will ultimately look for concrete signs that shipping is actually resuming,” said Dilin Wu, a strategist at Pepperstone. “In geopolitics, investors tend to trust the flow of tankers more than the tone of statements.”

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On Sunday, Kevin Hassett, head of the White House’s National Economic Council, said the Pentagon estimates the Iran mission could take four to six weeks to complete and that the US is ahead of schedule.

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“We expect that the global economy is going to have a big positive shock as soon as this is over,” he said on CBS’s Face the Nation.

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The International Energy Agency has warned the disruption to oil supply is unprecedented, and member countries announced last week a plan to release 400 million barrels from emergency reserves to help quell soaring prices.

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