Deutsche Bank strategists note that Brent Oil has reversed earlier gains as progress in US–Iran talks reduces fears over disruptions at the Strait of Hormuz. They highlight last week’s sharp Brent decline and collapsing inflation swaps as evidence that markets are pricing out a stagflationary shock. They stress that the path to a durable resolution in the Middle East remains fragile.

Middle East risk premium compresses

"Encouraging progress in US–Iran talks in Switzerland, mediated by Qatar and Pakistan, has seen both sides agree overnight to a roadmap towards a potential deal within 60 days, alongside the creation of technical working groups, a de conflict mechanism covering Lebanon, and a direct communication line aimed at avoiding incidents and keeping the Strait of Hormuz open."

"However, for now Brent crude (-1.61%) is reversing its earlier gains, currently trading at $79.27 per barrel."

"Recapping last week, oil prices kept falling as they reacted to the news that the US and Iran had reached an interim deal."

"So that considerably eased fears about a stagflationary shock to the global economy, particularly as data showed more traffic was starting to flow through the Strait of Hormuz again."

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