What oil price worries?
At Tricio we use charts in order to gauge investor sentiment and behaviour. The weekly chart of ICE Brent crude oil below (with 13 and 50-week moving averages) shows that the market has been relatively resilient in pricing in the impact of the US war on Iran since the start of March 2026. The long-standing peak from 2008 (China demand) is still intact just below $150/bbl. This may continue, but the fact that prices have been elevated for much of this year is starting to push major sovereign bond yields to higher than expected levels. As we discuss in our latest Economics for Investment quarterly, there are a lot of reasons behind the push higher in bond yields. Higher than expected oil prices don’t help to keep bond yields range bound though.
The risk, which the market has been desperately trying to ignore, is that this war extends in duration and escalates further. There is a real cost in human life and infrastructure, and with US media reporting that Trump may return to bombing Iran before the midterms, this could worsen. However, for financial markets, a shift in expectations on the direction of oil prices could have really big ramifications – if it ever happens.
The ICE Brent crude oil forward curves (below) provide a snapshot of expectations. Front month prices out to December 2030 are measured at different points in time in these curves. The remarkable steadiness of expectations of where the price will be in December 2030 is clear. There is one occasion where prices were in contango (December 2025), which in economic textbooks is how the curve ‘should be’. In other words, prices further out in time should have some sort of ‘cost of carry’ added to them – interest rates, storage costs etc. But oil prices have been trading in ‘backwardation’ for some time now, where future prices are expected to be lower than spot prices. For those of us who like to worry about the ‘what ifs’ and don’t live in the moment, watch this curve. If Trump’s war in Iran does escalate to the point of real long-term damage to shipping routes and infrastructure in this critical region, and the war spreads etc. to the point where the curve shifts away from expecting sub-$70/bbl. oil in Dec’2030 but starts to price in $90/bbl. in 2030 and higher – then it may not just be bonds being sold off.
Our favoured view is that further flirting with disaster will be avoided (apologies to Molly Hatchet). The war will hopefully be resolved in such a manner as to avoid further disruptions and oil prices will fall fast. But the quote from Sun Tzu (which will be used in our Talking Points next week) reminds us “Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win” Sun Tzu
As an aside, 2nd term Republican presidencies have given markets a lot to ponder. This is of course unfair, there are a lot of factors in play. But Reagan gave us the 1987 crash. George W Bush gave us the global financial crisis in 2008. Trump already weathered Covid in his first run, is he going to ‘trump’ this? Wait and see.
For further information on our research insights please contact us at info@tricio-advisors.com.
Gerry Celaya,
Chief Strategist
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