Oil catches bids at $84 price support, the ISrael/ Middle East situation is looking dire if Hezbollah/Iran join the conflict. Biden administration has closed off $6 Billion in oil revenue to Iran for funding Hamas. U.S.inflation is stuck at 3.7%.
Markets are grossly underpricing a full scale war in the Middle East and of course inflation. Which the two, more than not, are intrinsically linked. Apart from the fact that we have residual inflation from the poorly coordinated reflation trade of 2021, when everybody went rushing in with Trillions $ of stimulus, all the while supply chain shortages were still occurring. And the Federal Reserve reassured the market that any inflation was 'temporal' .
Chart 1, shows the oil price which has sold off after the Hamas terrorist attack on Southern Israel, as it foresees that tragic events could be contained, yet Israel has responded as through they are war with a whole nation, with brutal airstrikes and the biggest troop numbers amassing on the Gaza border in their history. Also noted in light of the oil price and geopolitical tensions, is the recent Wall Street Journal article suggesting that Biden administration has frozen a transfer from Qatar to Iran of $6 Billion (USD) of oil revenue for the prisoner swaps. Iran is a heavy hitter in the oil markets and if they did indeed back Hamas, who were involved in the massacre of Israeli citizens, whether the U.S. sets in place harsher sanctions on Iran, it may not be enough to contain Israel orchestrating a preemptive strike on Tehran. These, at this point in time, assumptions, but also a possibility. Considering what is unfolding in the region.
Chart 2. The latest Consumer Price Index figures has just been released for September 2023, and there has been an increase in cost pressures from July at 3.2% to 3.7%. Which is on par with August CPI figures, with inflation closing in 4% after the dip to 3% in June. Pointing to embedded inflation, mixed with rising oil prices.
Comments
Post a Comment