MUFG’s Michael Wan notes that Oil has spiked on renewed tensions in the Strait of Hormuz, even as Brent remains below US$85/bbl. He highlights Iran’s proposed restrictions on US and Israeli ships and regional conflict risks. Despite the move, MUFG’s base case is for Oil prices to trend lower over time, cushioned by episodic escalation and de-escalation.

Hormuz tensions drive short-term spike

“Oil prices jump and the Dollar strengthen on signs of renewed tensions in the Strait of Hormuz and ahead of the non-farm payrolls numbers later today.”

“In particular, Iran will seek to bar US and Israeli ships from the Strait of Hormuz and require compensation from hostile countries before they are allowed to use it, according to local media reports on a proposed Iran-Oman deal.”

“To be clear oil prices remain low in absolute terms even as it has jumped, with Brent still below US$85/bbl at the time of our writing.”

“This is not to say it will not change, but overall, the global economy has shown continued signs of resilience despite these shocks, with rebalancing in oil helped by lower imports from China thus far.”

“Our base case remains for oil prices to move lower over time, albeit perhaps continue to be buffered by escalation and de-escalation.”