An eventual firmer session in all markets migrates into another day and although there are no particular catalysts, the flush out of length in oil after a bout of cooling in Middle East hostilities seems to be over. In much the same way the uncertainty of last week that caused investor flight in traditional instruments such as equities has similarly eased. Wider investors have enjoyed a torrid few days in which the reporting season has added anxiety to equities and the thus far darlings of the stock market rally such as Nvidia and Tesla have endured a high level of selling scrutiny as reporting and sales disappoint markets. Given an incident free week from Israel and Iran, oil watchers will have to look to the wider macro this week as there are some important impending data.

This morning, Australia Judo Bank Manufacturing, Services and Composite PMIs flash registered 49.9, 54.2, 53.6 respectively, with Japan’s being 49.9, 54.6, and 52.6 in the same order. What will be interesting for those looking for a turnaround in industry is that while still just in contraction, both Australia and Japan Manufacturing were markedly higher than previous readings. There is little chance later that the HCOB PMI flashes of France, Germany and the EU will be anything close to the important ‘50’ number in Manufacturing, but their readings might have some sway on ECB thinking in term of interest rate easing. Although the S&P Global measure is not as watched as the ISM, its PMI flashes for the US will be similarly linked to how the Fed might read these economic markers.

Later this week, the giants of tech including Meta, Alphabet (Google), Microsoft and Tesla will make public their earnings and with some banks downgrading the mega-caps, their performances will have a profound effect on investor behaviour. Another standout mover and shaker coming at us on Friday will be the rate decision by the BoJ. There is little reason to believe that rates will actually enter positive territory, with incessant talk of intervention to save the ailing Yen, an increase of interest rate would be tantamount to shooting oneself in the foot. The Nikkei 225 has also fallen nearly 3,000 points or 7% since Japan exited its negative rate standing. Yet, Governor Kazuo Ueda, today said that rates would be increased again if inflation trended to 2% with analysts expecting at least one hike before year end. Therefore, the press conference will be keenly followed for any clues on forward thinking. The JPY is not only a home for haven seekers, it is able to alter the fortunes of the US Dollar and of course the greenback’s influence on commodities.

It is always about the timing

The oil market continues to run in obfuscation with moments of clarity only coming in extremis. This is ever made harder during the on/off prospect of war, particularly the added emotion and sensitivities surrounding Israel and the oil-important Middle East. There cannot be much doubt that the military aircraft attack weaponry exchanged between Iran and Israel was anything other than proportional responses that adhered to the limits of what each country could absorb politically, militarily and scope of each nations’ public opinion. The other consideration which might outweigh all else is relationships with the United States. There are plenty who bemoan that Uncle Sam is a superpower in the singular, but the world should be thankful that it has chosen to act as the global policeman in this potentially explosive and continually unfolding tragedy in Gaza.

The links between Israel and its staunchest ally needs no new words, it is a given. Iran still spits and snarls at the US in public, but quietly goes about an attitude of pragmatism. Anything other than gestural sovereign attacks by each party risks the ire of a US that right now has its own political reasons for letting Iranian oil get to water. At present, and according to Vortexa data, Iran has sold some 1.56mbpd in the first quarter of this year, take such an amount away from the market and even the greatest naysayers of $100/barrel crude, including us, would have to think again. The inflationary pressure and the subsequent rally of voter sensitive US Gasoline prices would be a headache to a Biden administration that, at present polling, is looking down the barrel of a two-percentage-point Donald Trump lead in a new national poll from NBC News, though Biden appears to be closing the gap as the 2024 race for the White House heats up. This very same reason is why Israel will not be allowed to target well heads or production infrastructure within Iran.

Yet the exported oil in the first quarter pointed out by Vortexa is estimated by the Financial Times to be garnering $35 billion-a-year, which if one looked at through Israeli eyes would see an abundance of monies that could be put into nuclear research, war machinery and the funding of Iran’s proxy antagonists. In such heightened times as these, Israel’s fear must be addressed if it is to remain fettered to the US’s desire for free running oil globally. This is why last week, Treasury Secretary Janet Yellen, probably tried to allay Israel’s discomfiture said, "with respect to sanctions, I fully expect that we will take additional sanctions action against Iran in the coming days," among other comments at an IMF meeting. However, what is the difference between blowing up Iran’s oil exports or sanctioning them out of use? Either leads to less international oil. The US has a dilemma and as with all geopolitical conundrums we can expect a public face versus pragmatic face as any legislative crimping of oil will probably be long on words, long on the length of time to activate and short on action.

As with any enterprise, including when to buy and sell, everything is about timing. If the US were to impose stringent oil sanctions at present, $100 call options would be in the money. However, in a sober market, not drunk on the ‘what ifs’ of a direct war between Israel and Iran, sanctions would almost be tolerable. Name a newswire or commentator and they all tell of OPEC spare capacity running to 5mbpd which is the highest since the banking disorder and recession of 2009. The other thing to remember is that nearly all of Iran’s crude exports are vacuumed by China, which is somewhat overlooked in the sensitivity of current affairs. Announcing sanctions too early would then still rally the market, announcing them too late will make for a possible Israel attack. The moving parts to these considerations are like the dials on the WWII Enigma code breaking machine and while the US has largely got everything lined up in some sort of order, the very nature of enmity between Iran and Israel will need correct timing now, and always.

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