Oil prices and stocks are talking past each other right now
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At the start of the war, stocks fell and oil prices rose on fears of the economic fallout from a historic energy shock — now that connection is fraying.
Why it matters: It highlights a key distinction between the stock market, which frequently seems to trade on vibes and memes, and commodities markets which ultimately are tethered to real physical goods.
The latest: Stocks rose Wednesday after President Trump extended the ceasefire, but oil prices also went up on worries that the world is running low on oil.
- Brent crude futures rose back above $100 per barrel on Wednesday. On Thursday morning, it's near $104.
- Both the U.S. and Iran are now trying to keep traffic from flowing through the critical Strait of Hormuz.
Friction point: This isn't fully stopping Iranian ships from getting out, JPMorgan's commodities team noted earlier this week.
- Data from Lloyd's List Intelligence shows "a steady floor of shadow-fleet traffic," and at least 26 Iranian vessels bypassing the blockade.
Catch up quick: At the start of the war, it seemed as if oil futures were trading like a meme, rising and falling depending on statements from the White House.
- But more than two weeks ago when Trump first announced a ceasefire, the connection broke.
- "The inverse relationship between oil prices and U.S. stocks ended two weeks ago when the pause in hostilities was announced," Bloomberg columnist John Authers wrote. "Nothing could bring it back."
The big picture: Oil prices remain high, because the ceasefire is obviously fragile, and because in the real world a lot of oil has stopped flowing.
Yes, but: Oil prices are still far below what analysts predicted at the start of the war.
- Some of this is due to what's called "backwardation," which simply means that investors believe that the price of oil will be lower in the future.
- Even the price for so-called dated Brent, or physical spot oil, is off the highs seen a few weeks ago.
What they're saying: If the strait reopens, it would take a while to get back to normal.
- "Once transit through the Strait of Hormuz is safe, supply could partially recover within weeks, but it would take a few months to unwind logistical and routing dislocations," Esther Sholes, a senior macro analyst for Take Profit Trader, a futures proprietary trading firm, tells Axios.
What to watch: Right now, Asia is the epicenter of the oil supply crisis, but the effects may be felt more globally in the coming weeks, write RBC commodities analysts in a note this morning.
- "The stage is set for a cruel summer."
