The US President’s influence on financial markets has become irritatingly axiomatic. Even when his posts or throw-away comments lack coherence and are contradictory, markets swing wider than a pendulum. Oil prices dropped nearly $3/bbl after Mr Trump said Iran tried to reach out to negotiate, although in the same sentence, he warned that the attempt came very late.
The black hole of Middle East current affairs takes precept of all oil price thinking and nothing can break its gravity, with both meanings of the word intended. Our market is settling into a world where missile exchanges are commonplace but the cynicism of it being normal has yet to set in because of how easily the situation could escalate.
The reaction to unexpected geopolitical developments in the proximity of oil-producing regions, such as the current Israeli assault on Iran, follows a similar pattern. When the headline hits the screens man and machine (traders and algorithms) get rid of risky positions and the adventurous ones start building up length. Phase one was embodied in Friday’s jump to $78.50/bbl in Brent. As details start to filter through, the actual situation is assessed, which can be labelled phase two. Oil supply and production were ostensibly spared in the initial strikes, and oil fell from the summit but still posted considerable daily gains because of the uncertainty the weekend carried.
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