Commerzbank’s Michael Pfister discusses how shifting expectations around a US–Iran deal are driving Oil and Dollar moves. Hopes for a swift agreement have recently pushed Oil prices lower and weakened the Dollar, but he stresses that damage to regional energy infrastructure and storage constraints mean Oil prices are likely to stay elevated for months, even if the Strait of Hormuz reopens sustainably.

Deal hopes versus lasting supply damage

"That’s how quickly sentiment can shift. In recent days, we’ve discussed at length on these pages the potential implications of renewed escalation in the conflict with Iran. However, yesterday, hopes for a swift end to the conflict were reignited. "

"First came the news that the Pakistani army chief was flying to Iran today to announce the final version of the agreement between the US and Iran. Shortly afterwards, the US president also mentioned that we were in the final stages of the negotiations. As expected, the market reacted with falling oil prices and a weaker US dollar."

"Even if the Strait of Hormuz were to sustainably open in the coming days, the effects would likely persist for months. Many energy facilities have been damaged and some Middle Eastern countries' storage facilities have been full for weeks, forcing production to be curtailed. It will take time for production to return to pre-war levels. Therefore, the oil price is likely to remain elevated."

"However, it is also possible that no agreement will be reached, and the current ceasefire situation regarding the Strait of Hormuz will continue. Either way, today is sure to be an exciting day."

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