Oil trapped by Strait’s jacket

Iran says oil will reach $200 as they continue to attack vessels in the strait even if the

U.S. has stopped them laying mines, but who would be willing to chance it? Nobody right

now, it seems the straits are devoid of shipping, so even though the IEA has released 400

million barrels of gutter oil from reserves, the price is still rising, and Bonyl

rising to and the Aussie dollar climbing to a new multi-year high as well. It's Thursday,

the 12th of March, 2026, it's the morning call from NAP. Good morning.

Well, oil is pushing higher again, still below 100, but close to 92 now for brand rising

over 4% this morning, WTI is up a similar amount to approaching 87 a barrel. Big moves in

Bonyl today up 10 basis points in Germany up 13 in the UK and France and up 6 for 10 year

treasuries. The US dollar has climbed 0.4% to 99.2% on the DXY, but the Aussie is also up by

half a percent over 71.5%, it actually hit a four-year high overnight and big falls for the euro,

which is down a third of 1% and the yen down half a percent. The Nasdaq is holding its own,

the S&P down less than 0.2%, but European stocks have taken a big hit. The DAX is down 1.4%,

the Eurostocks 50, down 3 quarters of 1% as well. Here's NAP's Udrigo Catrile in Sydney this

morning, so this rise in oil prices, obviously nowhere near as high as they have been, but still on

the rise, despite the IEA agreeing to release this $400 million barrels, I should say, from his

members, which is a third of total reserves, which you would have thought would perhaps bring prices

down, but no, it's continued to rise. Morning Phil, yeah, if anything, that is the takeaway,

you compare prices, although they've been quite volatile, but Brent is up effectively 5%.

And we've had these news that the release of oil supply is actually going to be larger than what

had been early reported earlier, so from the Wall Street Journal had an article suggesting 182

million barrels, and now we've been talking in 400. And yeah, the price has still gone up,

so I think that that's the sort of the read that we should take in terms of what's going on here.

The market remains very concerned in terms of what's going on in the street of Hamus,

and basically information that we're getting over the last 24 hours is not a good reading.

It sort of reinforces the view that we should be worried about this, and that the risk

at all prices are going up or getting higher from here rather than coming down.

Well, I have been looking at shipfinder.co, but there's a whole load of ship tracking apps where

you can see actually what's going on. There's nothing in the streets now. In previous days,

there were sort of vessels hanging around there, but nothing anywhere near now.

So, you know, we've got a round saying oil could reach $200 a barrel,

according to Reuters this morning. And, you know, this news about,

you know, they have been trying to lay mines. The Iran has been trying to do that.

The US says they've destroyed 16 Iranian mine laying vessels. I mean, were they successful in

laying any before they destroyed the vessels? That's the question. So, are the mines out there?

And then three commercial ships have been struck in the area as well by Iran. And so,

they're now targeting merchant cargo ships, not just oil tankers. And then a drone hit Dubai

airport yesterday. So, there's no way this is, this is easing at all.

Well, I suppose that the market is quite divided in terms of how to read all this news.

Our says is that at the moment the market is probably underestimating the risk that,

you know, all prices remain elevated for longer. And the overseas is not good for inflation and

the global growth outlook, but to your point, you know, the key to us is not whether

present Trump decides to end the war. The key is whether there is some sort of agreement or some

news that will give assurances that the flow of vessels through the strait of hummus will restart.

And at this stage, given what the Iranians are saying and doing, it's very difficult to see

this happening anytime soon. So, because President Trump keeps on saying even overnight that the war

will end soon, it's unclear to us that it's really up to him whether the flow of vessels

in the strait of hummus will end soon. So, or rather will start soon. So, yeah, for now,

the moment with our senses, I wish you expect ongoing volatility in energy prices. And to your

point as well, the strait of hummus is not just about oil, it's also about LNG. And it's also about

fertilizers. So, this cargo's do matter. And at the moment, the longer that there's no

ability to go through, and then the pressure on prices will continue to remain there.

Well, I tell you who is getting their vessels through Iran, the Wall Street Journalists,

they've had seven tankers go through since February the 28th and they are loading up more than

two million barrels a day. Slightly more than they were, you know, regularly before all of

this started, presumably bound for China. And I've seen Chinese registered vessels passing through

the straits of hummus as well. So, some is getting through, although maybe less so if they've,

if they have got minds there. So, let's look at US inflation numbers. We had some data yesterday.

Normally, we've excited about this, but I mean, it didn't really say very much new. Did it 2.4%

year on year, 0.3% month on month, which was up on 0.2% in January, but as expected, really,

nothing there to influence the Fed next week. Unless they're worried about the, you know, perhaps

the impact of oil prices on labor demand, too early to tell, presumably, but I mean,

these numbers really won't have changed their tune, will they? No, they wouldn't. So, though,

we've subscribed to Pantheon Economics, and you're quite right, when you look at the numbers,

there's fairly been iron, not a great deal of change. But the details that feed on to the core

PC deflator increased by 0.4 in February. So, that is a punchy number. So, we're going to remember

that when it comes to inflation, while the CPI is super important, is the PC measured and matters

most for the Fed. And at the moment, the feeding or the information that we get from this CPI

suggests that the core PC deflator is going to get a punchy reading in February. Now, the other,

the other kind of important dynamic, of course, is that oil prices have continued to rise.

And then we're going to start seeing that being come through in the data. So, when it comes to

March, then at this stage, what's already happening in terms of the rising in WTR prices is

suggesting that we should also expect a big jump on that reading, too. So, the dynamics are still

suggesting that the price pressures are still there. But what about the demand side of things? So,

if we are getting rising oil prices, companies may say, well, we can no longer fall to produce stuff,

therefore, we're going to start laying people off. And that could force the Fed to move rates down

to try and compensate. Well, I think that the central bank playbook, if you like, is that

typically when you have an inflationary shock of this side, from the supply side, you tend to

sort of look through it. Now, if that shock tends to be a little bit more longer lasting,

or has the prospect of becoming more longer lasting, and inflation expectations have the potential

become the anchors, that that's when you have a central bank probably leaning against it.

Obviously, an extended rise in energy prices and extended rise in inflation can also be the

demand destructive. But at this stage, I think, when it comes to the Fed, the focus will be on whether

this inflationary shock has the potential to the anchor inflation expectations. Now, what we

have to be saying as well, and what Sally has been saying, that when you think about Australia,

the problem that we have is that we're ready, we're in a situation where we have capacity constraints,

a tight-level market, and an inflation that is coming from a lot of places. So, we do have an

inflationary problem. Well, the pricing is really shifting. Yeah, for the RBA to deliver a

rate hike next week, I mean, the pricing is... Well, yeah, and that's the reason why we have changed

our call now, and kind of realized that all these inflationary pressures in addition to know

is coming from their own conflicts. It's probably going to force the hand of the RBA into hiking,

and in fact, we are now... We have been saying that there was the risk for a second hike, in

addition to the one we were expecting in May. And now, I will use that the RBA, particularly given

what RBA houses said last week, it's kind of pretty much likely to hike, not only in March,

but also in May. Right, so there will be a hike in May, but that will be the second hike that

you're talking about. Wow. Okay, and then let's say the yields just globally, much higher today,

treasure yields included. So, we had a 10-year bond auction overnight, so yields were rising when

they up to that, up to that point. The demand perhaps not surprisingly for auction was weaker,

and we've got a 30-year to come tonight as well, presumably we're going to see the same pattern.

Yeah, it's interesting, because yields were rising pretty much at the start of the European

session and into the early parts of the U.S. session, and by the time the auction came,

as you said, it met a tepid demand, but the rising yield didn't extend, so it's almost like the

demand was already sort of bracing itself for a soft reading. And as you mentioned, now we have

the 30-year auction next to tomorrow, so there's going to be probably a lot more focus on the

back end of the curve and see how that behaves. But given the soft demand that we've seen today,

the bias will be that we might get another soft tepid or auction tomorrow, and that may

make a little upward pressure in the back end of the curve. Not much data today to go on well,

and there's a bit, but really, it doesn't matter, questions. So, U.S. trade data, interesting,

but it's all going to shift. The weekly jobless claims for the U.S.

same story and hazing starts. Oh, well, nice to know. Nice to know, and I suppose to focus

there on the U.S. weekly reading jobless claims, is that we haven't seen any signs of weakness.

It's pretty steady, so unless that moves, we don't think we're going to see a big market reaction.

And yeah, we've got not much in the way of central banks, because the Fed obviously is in

lockdown ahead of next week. But Michelle Bowman is talking from the Fed, but she's obviously not

talking monetary policy because she's not allowed to. And Francois Villeau from the ECB talking

in the early hours of tomorrow morning, but it'll be very difficult to take a position on anything

right now, wouldn't it? Yeah, the only thing I would add to that is that we did have ECB speakers

yesterday. And there is sort of, again, as just often the case with team ECB speakers,

Lagarde has spoken before and said that the bank is well prepared to deal with inflationary

pressures, or rather Europe is well prepared. But ECB Kasim was a little bit more

hawkish, if you like, saying that the inflationary impact from this could prompt

a hike sooner than expected from the ECB. So certainly, again, they're looking at those dynamics

as they should in terms of what the impact could be from high oil prices on inflation and inflation

expectations. Yeah, but how high and for how long we still have no idea on that. We're all

flying blind, aren't we? Good to talk with Draco. We'll catch you again soon. Cheers, Phil.

The world is a mess. I think we can all agree on that. That's it for today, back again tomorrow

morning for Friday's edition of the morning call. I'm Phil Dobby for NAP. I'll see you then.