Brent Crude Extends Rally as Geopolitical Tensions Rise

Key Moments

Geopolitical Tensions Support Elevated Brent Prices

Deutsche Bank strategists report that Brent Oil prices have continued to advance as tensions between the US and Iran persist and the Strait of Hormuz remains effectively closed. This backdrop has kept upward pressure on energy markets, with Brent futures across the curve moving to multi-week highs. At the same time, US gasoline prices and inflation swaps have also increased, indicating that markets are increasingly factoring in a longer spell of elevated energy costs.

Spot and Futures Curve Strengthen

According to the strategists, the ongoing geopolitical backdrop is translating directly into firmer crude benchmarks. They note: “From a market perspective, that means oil prices continue to grind higher, with Brent crude rising +3.10% yesterday and another +0.97% overnight to $106.09/bbl.”

They add that the rally has not been confined to the front end of the curve: “Back to yesterday and oil’s gains extended across the futures curve.” The 6-month Brent contract climbed +2.34% to reach a 3-week high of $86.74/bbl, as investors prepared for what they see as a more enduring period of elevated energy prices.

Downstream Products and Inflation Expectations React

The firm notes that price pressures have been particularly pronounced in refined products. As highlighted in their commentary, “The pressures were even more visible in downstream products with US wholesale gasoline prices (+3.10%) reaching their highest level since 2022.”

This movement in energy markets has been mirrored in inflation-linked instruments. Deutsche Bank points out: “This was echoed in near-term inflation swaps as well, with the 1yr Eurozone inflation swap (+16.2bps) surging up to 3.35%, whilst the 1yr US inflation swap (+8.6bps) rose to 3.32%, with the latter now only 6-7bps below its high on March 20.”