Renewed concerns about the course of the war between the United States and Iran sent global benchmark Brent crude oil futures to a four-year high on Thursday, rattling stock markets, but analysts say investors are still pricing in peace and are underestimating potential future risks. The recent rise in oil prices came after Axios reported, citing anonymous sources, that U.S. Central Command is preparing to present to U.S. President Donald Trump the possibility of further military action against Iran. The president also reportedly rejected a peace offer from Tehran, meaning the US blockade of the Strait of Hormuz, a key oil shipping route, will continue. By 6:06 a.m. ET, Brent futures for June delivery were down 1.7% at $116.05 a barrel. This is down from an earlier rally towards its highest close since March 2022. U.S. West Texas Intermediate futures for June delivery fell about 0.2% to trade at $106.59, also missing earlier gains. @LCO.1 @CL.1 1D Line Oil Futures New volatility on Thursday raised questions about the future of oil markets and the global economy. “This movement in oil prices may trigger a change in sentiment and long-term positioning,” Neil Birrell, chief investment officer at London-based Premier Mitten Investors, told CNBC in an email on Thursday. He noted that asset prices and sentiment fluctuated along with oil prices during the two-month Iran war, but “they feel more reflective of the likelihood of a resolution to the conflict.” Backwardation bites the oil market Since the outbreak of the Iran war in late February, oil markets have been mired in backwardation, a phenomenon in which short-term delivery futures trade at a premium to long-term contracts. Even as short-term futures contracts continue to surge, backwardation remains the same, indicating that money markets are pricing in an impending war resolution and stabilization of energy prices. The optimistic sentiment has spread to other asset classes as well, with traders largely ignoring the sell-off and volatility seen in the immediate aftermath of the outbreak of war. But a four-year high in the oil market and renewed concerns about President Trump’s next move flooded stock and bond markets again on Thursday. “The macro impact and potential damage to corporate profits will once again come into focus,” Birrell said of Thursday’s oil price spike. “But the economy and stocks in particular have proven to be incredibly resilient. The question is, can it continue if oil prices stay at these levels or above?” Patrick Armstrong, chief investment officer at Prulimi Group, warned that month-on-month futures prices could rise significantly in the short term, but also warned that investors may not have fully factored in the long-term impact of the war. “What makes the curve crazy to me is the sharp setback,” he said. “Prices are being set as if the Straits are going to open soon, and then everything will be fine. Millions of barrels every day are backlogged, which has led to significant destocking of oil. But refined products, especially jet fuel, oil, and even oil, all of this is approaching the so-called crisis level, where you really have to pay to get them, and the refineries are approaching the so-called crisis level with incredible profit margins. Armstrong told CNBC that sellers “will be able to charge whatever they want for refined products because oil prices are going to stay high for a long time.” “President Trump pushed oil prices down by saying we have a peace deal, but we still don’t have a peace deal.” “We think the Straits will be turbulent throughout May, and there’s very little inventory, so it’s hard to diversify stocks. Energy stocks are diversifiers, and they go up when everything else goes down, because that’s the hedge against stagflation, (and) that’s the biggest risk in the world right now. Bill Perkins, founder and managing partner of Schuyler Capital, an energy market-focused hedge fund, told CNBC’s “Squawk Box Asia” on Thursday that the economy has yet to see the true impact of the oil crisis caused by the de facto closure of the Strait of Hormuz. “It takes about 40 days for that crew to get to their final destination, which is a large customer. When a well dries up, it takes a little (time) to feel the effects because there’s still oil on top of the water that got it there,” he said. Perkins said the bigger issue is what is happening in the diesel and jet fuel supply chain, noting that while Strategic Oil Reserves have held back the crude oil market somewhat, the price of diesel has almost doubled. “In the product market, it’s like the Wild West,” he said. “Even if we had peace today, we also have to consider the logistics of getting the ship out.” But Perkins also struck a more optimistic tone, telling CNBC that any peace deal would likely “come with some kind of good-child dividend for Iran” and would create deflationary pressures on energy. “Maybe they won’t be sanctioned,” he said. “Venezuela is not under sanctions. Strategic oil reserves are being released around the world. Once the logistics in the energy market are in place,[the market]will be very bearish. That should also push up stocks and demand will resume. It’s just a matter of timing.”
