Analyst forecasts sustained oil prices above $100

Global energy markets are bracing for a sustained period of elevated prices, with oil benchmarks expected to remain above $100 per barrel. This outlook is driven by a confluence of factors, including stalled diplomatic negotiations and significant physical shipping constraints, which FXTM's Head of Market Research, Lukman Otunuga, describes as a "perfect storm".

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Deepening conflict may keep oil prices elevated, with triple digits potentially becoming a new normal amid extreme supply tightness.

The primary catalyst for this price surge is the escalating geopolitical tension between the United States and Iran. Following the collapse of critical diplomatic talks in Islamabad over Iran's nuclear program and maritime control, the U.S. has signaled its intent to blockade vessels transiting the Strait of Hormuz. This chokepoint, already experiencing restrictions since late February, is now a focal point of market anxiety, leading to a sharp increase in Brent crude prices and a resurgence of supply shock fears.

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Oil benchmarks surged as the US vowed to blockade all vessels passing through the Strait… supply shock fears returned with a vengeance.

Otunuga warns that deepening conflict could cement triple-digit oil prices as the "new normal" amidst extreme supply tightness. The market sentiment remains fragile, with traders highly sensitive to any developments related to Iran's shipping restrictions and threats to Gulf ports. The surge in oil prices is already sending ripples across other asset classes, with gold facing downward pressure despite its traditional role as a safe haven.

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This fresh uncertainty was reflected across markets this morning, with risk aversion affecting equities.

The persistent high energy costs present a complex challenge for central banks worldwide. While some, like the Central Bank of Nigeria, might consider rate cuts if local inflation eases, global counterparts are compelled to contemplate further interest rate hikes to combat "conflict-induced inflation." This uncertainty is reflected in financial markets, with risk aversion impacting equities and raising concerns about inflation and growth shocks that could threaten the global economy.

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The Strait of Hormuz has been effectively closed since late February, raising the risk of inflation and growth shocks that threaten the global economy.