Key Moments
- WTI trades around $98.60 after rebounding from two days of declines, supported by ongoing geopolitical tensions.
- Oil has risen over 10% this month amid intensifying hostilities in the Middle East and Eastern Europe and uncertainty over U.S.-Iran diplomacy.
- Despite at least 18 vessel attacks in the Strait of Hormuz, Middle East oil shipments have recovered to roughly 80% of prewar levels.
WTI Steadies After Recent Pullback
West Texas Intermediate (WTI) crude extends its advance after two consecutive sessions of losses, trading near $98.60 during Asian market hours on Wednesday. The recovery comes as participants in the energy market weigh conflicting commentary around diplomatic efforts between the United States and Iran.
Crude prices firmed as traders reacted to shifting headlines on negotiations, which remain active but have yet to deliver a clear breakthrough. The lack of a definitive outcome has helped keep risk premiums elevated in the oil complex.
Diplomatic Efforts Temper Momentum
Market sentiment encountered resistance following a series of high-level diplomatic meetings. Pakistan’s army chief, Field Marshal Asim Munir, held talks in Tehran with senior Iranian diplomatic and military officials focused on bilateral relations and the trajectory of discussions with Washington.
Clarifying the state of play, a diplomat involved in the talks stated that efforts to resolve the conflict are ongoing and rejected suggestions that a final agreement was close. These comments cooled earlier speculation about an imminent deal and contributed to a more cautious tone among energy traders.
Geopolitical Risks Drive Monthly Surge
Even with the uncertainties surrounding the diplomatic track, crude benchmarks have advanced more than 10% this month. The move has been fueled by overlapping supply concerns stemming from mounting hostilities involving Saudi Arabia, Iran-backed Houthi forces, Russia, and Ukraine.
These tensions have been accompanied by a series of disruptions in key shipping lanes. Over the past two weeks, there have been at least 18 vessel attacks in the Strait of Hormuz, a critical chokepoint for global oil flows. Despite the security challenges, regional energy infrastructure has largely remained operational, and Middle Eastern crude exports have rebounded to about 80% of prewar levels.
| Market Indicator / Development | Detail |
|---|---|
| WTI price level | Trades around $98.60 during Asian hours on Wednesday |
| Monthly move in oil | WTI has climbed over 10% this month |
| Strait of Hormuz incidents | At least 18 vessel attacks over the past two weeks |
| Middle East oil flows | Recovered to approximately 80% of prewar levels |
Brent Reaches New Multi-Month Peak
Strategists at Societe Generale pointed to renewed momentum in the broader crude complex, emphasizing the latest gains in Brent futures. According to their assessment, Brent has “backed up to $111.2/b, highest since 20th May,” highlighting the benchmark’s climb to a fresh multi-month high.
Background: The U.S. Dollar and Fed Policy
US Dollar FAQs
What is the US Dollar?
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
How do the decisions of the Federal Reserve impact the US Dollar?
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
What is Quantitative Easing and how does it influence the US Dollar?
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the US Dollar?
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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