The United Kingdom Maritime Trade Organisation (UKMTO) is highly regarded within the maritime community. Independent of government interference, those involved with pushing ships around on the high seas value its unbiased information and how it garners intelligence. Its voluntary reporting scheme, while obviously not adhered to by all, gives it the ability to not only track trends but also enables it to establish where vessels might meet traffic and even threats. This is because it has relationships with other maritime institutions and even the militaries of nation states. Therefore, when it issues advisories, bulletins and security alerts, the shipping world pays attention. 

Yesterday’s advisory late on in the trading session took a positive looking news day, as discussed below, and turned it full-blown bullish. Advisory 21 revealed, “UKMTO has been made aware of increased tensions within the region which could lead to an escalation of military activity having a direct impact on mariners. Vessels are advised to transit the Arabian Gulf, Gulf of Oman and Straits of Hormuz with caution.” Although there followed no specifics, the laggardly nuclear talks between the US and Iran is causing frustration in Washington and by default in Tel Aviv. The spread of conflagration fear ended up being unjustified after Gaza and the almost theatrical exchange of missiles between Iran and Israel. But notions of a bombing of the Islamic State’s nuclear capabilities that are fuelled by the UKMTO mentioning Hormuz, rightly urges a market to take upside risk insurance. Once again, Middle East tension elbows its way into consideration and with Iran threatening to strike American targets if it is bombed, the US evacuation of some Iraqi embassy personnel once again brings the eternal strife of the area front and centre.

Maybe not long-lasting, but a few rungs are added to the bullish ladder

There is an incremental short-term bullish tinge colouring the outlook for oil prices at present, which along with the other varied derivatives in the investment suite are enjoying being told and sold a story of a better tariff outlook between the United States and China. Despite the US President’s bellowing on Truth Social that, "our deal with China is done, subject to final approval with President Xi and me […] we are getting a total of 55% tariffs, China is getting 10%”, it looks a complicated affair, particularly when 20% of the US tariff on China involves Fentanyl. However, a White House official was at pains to point out to CNBC, “this is not a new escalation in tariffs. The additional tariff so far this term is still at 30%, as agreed after Geneva. That adds to the 25% tariff already in place before this term.” The complication becomes complicated even further when considering what happens after the 90-day tariff pause is over, and if, which is more likely, another falling out between the two largest trading nations in the global buy/sell business transpires. With China’s tight grip on rare-earth minerals, any dalliance in allowing them to flow freely to the US will see this suspension of hostilities replaced with open tariff warfare. Indeed, speaking before the House of Representatives Ways and Means Committee only hours after securing the London deal, U.S. Treasury Secretary Scott Bessent felt it necessary to offer advice on how China should consider stimulating domestic markets rather than flood export lanes with excess and that, “[it] needs to be a reliable partner in trade negotiations.” As for China, it well understands the US is motivated by a pressing need for rare-earth materials and according to WSJ sources, is limiting the easing of rare-earth export licenses for U.S. manufacturers to six months. This must be a hedge against any future trade deal breakdown.

What was also a kicker for risk seekers was the mild reading in the US CPI. Many had expected a showing of influence of tighter supply lines and therefore higher prices due to tariffs, but at present it looks as if such agitation is yet to turn up. The Core CPI came in month-on-month +0.1% versus +0.2% expectation, and the year-on-year, +2.8% against +2.9% forecasts. Such slow readings will have those that expertise themselves in bond-to-yield-to-debt ratios once again having to make fresh adjustments on spread sheets. Breaking down the metrics offer some strange outcomes. Despite tariffs clothing fell by 0.4% month-on-month and the new vehicle index fell by 0.3%. It is possible to link the recent ISM Manufacturing PMI that reported on lower purchasing and lower future orders, suggesting a rundown of stock as explanation. But the soft inflation standing is enough to warrant a rethink in pricing of future interest rate cuts by the US Federal Reserve. There is little reason to believe any change of heart from the FOMC meeting next week and a roll of the current rate expectation, however, pricing for cuts in July, September, October and December have all crept higher. Small beer maybe, but the CME Fedwatch tool indicated 42-basis points of cuts through December before yesterday’s inflation numbers, that has now moved to 48-basis points. Equities are enjoying this possible easing of an interest rate future, but none scream as much as The Donald. “CPI just out,” he spouted on his busy postings, “Fed should lower one full point. Would pay much less interest on debt coming due. So important.” And it really is. With the ‘big, beautiful bill’ about to ramp US debt, the bond market will need every tool in its arsenal to finance it, including lower interest rates.

An easier tariff and possible interest rate landscape is adding to the nearby tightness narrative pervading oil circles. It is also interesting how the intention of OPEC+ to increase barrels into the market has not yet had the deleterious effect on prices 411kbpd would suggest. As seen in Platts OPEC+ survey from S&P Global Commodity Insights, OPEC+ countries with quotas underproduced their collective targets by 28kbpd in May, compared with overproduction of 171kbpd in April and 319kbpd in March. With a draw in the EIA Inventory of Crude stocks by 3.644mb last week and the feedstock along with Gasoline and Distillate levels being lower than last year, the summer months’ inspiration to oil price bulls continues. Whatever future disappointment may come from tariff torment, inflation, a stubborn US central bank and readily available OPEC+ oil, the current renaissance in oil prices has a little more about it than just driving season wishful thinking.

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