Oil Prices Edge Lower Amid Hormuz Uncertainty and Tight Global Balances
Oil prices edged lower after a six-day rally as investors awaited progress on reopening the Strait of Hormuz, a key trade route in the Middle East. The US-Iran negotiations remain deadlocked, with both sides hardening their positions and the US maintaining pressure through its blockade of Iranian ports. Despite this, the IEA estimates that the global oil market will face a significant 1.8mb/d supply deficit in Q3, more than double its previous projection.
The deficit is due to prolonged Middle East conflict and disruptions linked to the Russia-Ukraine war, which have tightened supplies. However, near-term upward pressure on prices was partly offset by a 17.4mb increase in US crude inventories, driven by weaker exports and higher imports. Going forward, progress on restoring Hormuz traffic remains the key catalyst for prices.
Gold held steady near USD4,400/oz as softer-than-expected US inflation eased pressure on the Fed to raise interest rates. US consumer prices increased just 0.1% m/m in July, suggesting that inflationary pressure from earlier energy-price shocks is moderating. The gold price has been supported by renewed investor demand and continued central-bank purchases, particularly from China.
In the credit trading sector, client activity remains very low, with spreads generally going wider across the region. The US 10yr auction tonight may lead to further market volatility, while some two-way trades in GCC floaters have been seen coming out of Asia this week.