The global markets are in a state of flux as tensions escalate between the US and Iran, with Donald Trump's deadline to open the Strait of Hormuz looming. The ASX is poised for a marginal gain, while Wall Street's response overnight was mixed, with some positive momentum at the closing bell. Oil prices have slipped, and the Australian dollar is trading higher, but the market remains volatile and uncertain.
The Strait of Hormuz is a critical chokepoint for global oil supplies, and its closure has led to a significant increase in physical oil prices, with European and Asian refiners paying record-high prices for crude oil grades. The panic over supplies is driving these prices higher, and the competition for supply from Asian and European refiners is exacerbating the situation.
The Iran war has forced the shutdown of at least 12 million barrels per day, about 12% of world supply, from the Middle East due to Iran's effective closure of the Strait of Hormuz. This has led to a surge in the price of North Sea Forties crude, which reached an all-time high of $146.09 a barrel on Tuesday. The outright price of Forties is linked to the physical crude benchmark called dated Brent, which is trading almost $20 higher than the price of Brent futures for June delivery.
The situation is further complicated by the verbal barrage being fired from the White House, with US President Donald Trump threatening to order strikes on bridges and power plants if Iran does not make a deal to reopen the Strait of Hormuz. Pakistani Prime Minister Shehbaz Sharif has called for the US president to extend his Iran deadline by two weeks, and the White House has acknowledged Pakistan's proposal.
The markets are in a state of holding position as the deadline ticks down, with some buying momentum late in the day on news that Pakistan had provided cover to ease tensions. However, the situation remains volatile, and the markets are erring on the side of either a further extension of the deadline or some sort of resolution.
The Australian dollar is trading higher, back towards 70 US cents, but CBA's currency strategists say this may be just a temporary spike. Optimism around a political resolution to the war can push AUD/USD up further, but the US is expected to escalate its actions. The markets are in a state of flux, and the situation remains uncertain.
