Oil: Middle East tensions and yield spillovers – MUFG

MUFG’s Derek Halpenny argues that Middle East developments and Houthi attacks on Saudi infrastructure raise the probability of higher crude Oil prices. He warns that an escalation involving US support for Saudi Arabia or renewed strikes on Iran could push Oil back toward earlier-year peaks. Such a move would likely trigger another jump in long-term yields and broader market volatility, impacting global FX.

Conflict scenarios point to higher crude

"The general consensus on the Middle East is that energy prices are unlikely to retrace and that the current status is likely to continue. But the risks now seem more skewed to a worsening of the crisis. The Houthis have shown no sign of letting up and is now reported to have attacked the Saudi Aramco headquarters in Dhahran and several other cities."

"Each day of increased attacks brings a greater risk of US involvement in support of Saudi Arabia that would likely prompt a further jump in energy prices."

"An escalation of renewed attacks would likely see investors price in a more prolonged conflict that would see crude oil prices move toward the peak earlier this year. That would be the catalyst for another jump in long-term yields that would see broader volatility jump."

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