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Pro: Oil price volatility
Investors welcomed the prospect of a U.S.-Iran peace deal on Monday, but analysts warn that oil price volatility is likely to persist in the near term due to a lingering geopolitical risk premium. Global oil inventories, depleted by the prolonged closure of the Strait of Hormuz, will need time to rebuild and may decline further before new supplies from the Gulf arrive, according to Westpac. ANZ senior commodity strategist Daniel Hynes told CNBC that the energy shock is "far from over" and that shipping traffic through the Strait is unlikely to return to pre-conflict levels soon. He cited heavy inventory drawdowns, mine risks, and ship repairs as challenges, estimating a recovery of weeks or months. International benchmark Brent crude futures for August fell 5.16% to $82.82 a barrel, while U.S. West Texas Intermediate dropped 5.61% to $80.03, its lowest since March. Hynes noted that $80 will not rebalance the market over the next three to six months, predicting prices in the "low $90s" for the third quarter. He cautioned, "The market is oversimplifying things... Iran's control over the Strait will keep prices elevated." TD Securities' Bart Melek added that even if flows normalize immediately, some 800 million barrels of inventories could be lost by November. Higher oil prices remain "very much in the cards," with inflationary implications, though China's potential inventory drawdown might prevent massive spikes. Melek concluded, "The market is relieved, but we're not out of the woods yet." HSBC's Willem Sels noted that the economic effects of the Middle East conflict are already impacting vulnerable economies, particularly in South Asia, where challenging data could cause further volatility.