by Hubert Marleau, Market Economist, Palos Management
The oil market entered a stage of crisis on Friday, with the international benchmark for a barrel of oil closed at $93.08 - 30% higher than when the Iranian war broke out - en route to $125 if the Strait of Hormuz were to freeze for a long time, thereby creating a nightmare scenario for global energy complex. The energy share of the world GDP has risen in the last 7 days to roughly 7.0% from 4.5%, dashing hopes that economic activity will be able to maintain the growth momentum of the 9 months.
Indeed, the spot price for crude hasn't been this overbought since 1990, nonetheless commercial traders are signalling that this geoeconomic test is likely temporary. Yes, Brent crude January 2027 contracts are about $20 cheaper than spot, suggesting that the Iranian will not have the capability to keep the Straight closed because Iran will eventually ruin of of missiles, drones, and speedboats and fresh water as US navy ships escort tankers, the International Development Finance Corporation offers insurance, and world pressure mounts on both US and Iran mounts to end the war.
The S&P 500 closed at 6740, down 3.4% from the high of 6978 registered on January 28, about when realpolitik, real tension and real threats between the U.S.and Iran began. There is talk that it could fall another 5%; but if it did, the dippers would likely stampede into the market. Why? Reliable economic models and trackers are still forecasting more than 2.0 percentage points of US real growth in Q1/2026, despite dull employment data in the last 3 months.
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