Week in Review: Shock to the system

This week, energy supply itself became a target in the war in the Middle East.

Plus, fed policy makers think it cut to still on the table for this year.

And in Europe, central banks prepared to hike.

This is Wojtek's morning bid, bringing you unfiltered market news and analysis

straight from the Wojtek's newsroom seven days a week. I'm Elena Kasas in London.

And I'm Peter Devlin, it's Saturday, March 21st.

So, Elena week three of the wars officially wrapped up, and I'm sorry to say even more escalation this week.

Seems that energy facilities across the Gulf are no longer off limits.

I mean, we saw attacks in Iran as well in Qatar.

This does seem like a major escalation this week, doesn't it?

Well, we thought the threat to energy supply was really about disruption to shipping.

And of course, the strait of hormones through which about a fifth of the world oil and gas

would normally transit remains blocked.

Iran allowed a handful of tankers through on Friday, but the majority of supply still can't go anywhere.

But then really the stakes became much higher this week when energy supply itself became a target.

The U.S. and Israel targeted Iran's major gas field and Iran responded by hitting Qatar's,

which has been described by some analysts as an absolute worst case scenario for Europe's gas supplies.

The Qatar energy CEO told Reuters this week that 17% of the country's production has been knocked out by those strikes.

And it could take three or four years to get back online.

So really, that changes the timelines in this crisis because a disruption to shipping can be resolved relatively quickly.

But if we're talking about the destruction of facilities and those timelines become much longer.

I mean, it definitely feels like maybe a doomed day scenario is starting to come through.

Let's remember at the start of the year, we were at a glance in terms of gas prices.

And now I'm more instantly noticed that all it takes is about a month for disruption until you start seeing a deficit.

It really looks like those prices are going to keep rising, doesn't it?

In some ways, it still looks like traders are being too optimistic.

I mean, Brent crude hovering just above $100 a barrel.

Gas in Europe is still nowhere near the levels that we saw after Russia's invasion of Ukraine in 2022.

But the physical disruption is much worse.

Just look at the actual prices that you would be paying to buy barrels of oil that are in transit now.

So when we talk about Brent crude being around $100 a barrel, we're talking about futures contracts.

If you physically buy a barrel of oil now that's on a tanker leaving Dubai, the price of that has jumped to $166 a barrel.

If you're buying refined products, jet fuel traded in northern Europe is selling at 220 on Friday.

That is an indication of just how high energy prices could go if the disruption goes on.

And it really does make it seem the oil traders are perhaps being too optimistic about how quickly this could be resolved.

But let's talk about the pain at the pump because it's really hitting Americans, isn't it?

And that's coming through with the US administration with their efforts to bring down their prices.

We saw a US Treasury Scott percent saying an unprecedented move that they might be unsanctioning a reneoil on the water,

which is about 140 million barrels.

And by 10 to 14 days of supply, a really scatter shot of a policies here, isn't it?

Well, yes, somewhat bizarre. I know that as they continue to bomb around the US,

may partly drop sanctions on Iranian oil.

And Iran, of course, continues to export its own oil via the Strait of Hormuz and enable it to finance the war by selling this.

Of course, as we've pointed out a number of times already on this,

the price of gas at the pump is less of a factor in Americans' budgets than it was even 10 or 20 years ago.

It takes up less of Americans earnings, but it remains this hugely politically salient issue.

It was very interesting this week, though, to see that despite this spike in inflation,

there was of course a fed meeting at which policymakers still project that they will be able to cut this year,

which was really quite a surprise.

It was quite surprising. I mean, it did seem like a bit of a turning point,

though, for a central bank meeting for the Fed.

The dog plot still showed one cut this year.

It definitely felt maybe a bit of a hawker short.

Absolutely. Of course, the other interesting thing was that Jerome Powell suggested that he may be sticking around.

This was supposed to be his second to last ever meeting.

By June, President Trump's pick, Kevin Warsh, is supposed to be in the chair.

But of course, he still hasn't been confirmed. Powell said that he would stick around if that isn't happening,

and then he might keep his board seat.

Even after Warsh has taken over, so that also is a very hawkish signal to market.

Let's talk about inflation, though, because that's the big worry here for the Fed.

I mean, Powell was saying that was frustration seeing some areas of inflation coming down,

and this is even before the energy price shock is really feeding through.

Powell joked as well that some colleagues didn't really want to bring out price forecasts this week

because of the disruptions and sort of fog of war that they're muddling through.

There's problems with inflation even before this, isn't there?

Yes, and we don't get any data remember that has come out after the start of the war,

after the energy price shock until next week,

or we will at least get some figures that show us how it's feeding through into businesses.

But inflation is incredibly stubborn in the US even without this.

Powell also mentioned tariffs, which of course remain the subject of huge amounts of legal wrangling.

But again, we're still waiting for them to mark their way all the way through to the prices that Americans are paying.

We're already seeing some markets repricing of where central banks are going to go now.

B&B Paraba already saying that a talk of a hike in April, maybe for the Fed,

they're pointing that an interim meeting with no economic projections coming out.

This is the time to really maybe discuss and see what's going on with the markets.

But what really saw throughout Europe this week as well,

the Bank of England ECB, big talks of Hikes, isn't there?

Absolutely, just a couple of weeks ago we were expecting the Bank of England to be cutting twice this year.

The market now expects it to hike twice.

And as you say, the ECB could be talking about a hike in April and actually doing it in June.

This is a dramatic repricing and we've seen it across the bond market.

We've seen big sell-offs in European bonds and especially in the UK.

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Well, it's Saturday, so it's quid's time.

Oil has been the major focus of morning bed in recent weeks of course,

but looking back on another conflict,

just how high did Brent crew rise after Russia's full-scale invasion of Ukraine in 2022?

Was it A, $133?

B, $153?

Or C, $173?

We'll have the answer for you in tomorrow's show.

And for more of any of today's stories, head to rotors.com or the rotors app.

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just ask for the latest market news from rotors seven days a week.

And we'll be back tomorrow.