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The price of oil retreated on Tuesday even as fundamental questions remained.
The first tentative signs of progress in the Middle East emerged yesterday. President Trump suggested the US was close to meeting its objectives, while efforts to restore the flow of oil to helped calm nerves and reverse some of the painful market losses over the past fortnight.
Sterling traded in a comparatively narrow range against the US dollar and the euro on Tuesday, remaining around half a cent up compared to the end of last week. Risk appetite recovered despite lower (but still inflated) oil futures and intensified hostilities on the ground.
As of this morning, Brent Crude has dropped to about $87 per barrel and West Texas Intermediate to $85. For Brent, that marked a sharp recovery from the peak of almost $120 per barrel on Monday morning and helped the FTSE 100 add more than 1.5% across Tuesday.
Nevertheless, the recent drama has had a profound effect on the interest rate outlook. The Bank of England’s March meeting (19 March) has gone from something of a slam-dunk to an open question of whether it can even afford to cut in 2026. The Federal Reserve, the European Central Bank and other major monetary organisations across the world are facing similar questions.
Even though the supply shock may take months to translate to the economic data, UK consumers are already feeling the pinch in their wallets. Chancellor Rachel Reeves yesterday warned petrol station operators against any price gouging. In a speech to the House of Commons, she highlighted that some retailers were charging as much as 180p per litre of fuel, while others were selling it for just 130p.
Attempts to resume shipping in the vital strait of Hormuz are still up in the air. President Trump’s pledge to resume traffic didn’t come to pass yesterday, while Saudi Arabia’s state oil company Aramco warned there would ‘catastrophic’ effects if it did not reopen soon. Aramco’s commitment to boost supplies to the Red Sea by seven million barrels per day was the chief catalyst for oil’s stark correction yesterday.
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GBP: OBR counts cost of long war
The Office for Budget Responsibility (OBR) recently unveiled updated economic forecasts to accompany the spring statement. Events have rendered these hideously outdated. The data agency said yesterday that a prolonged conflict would push headline inflation (previously expected to fall to 2% in the near future) above 3%.
GBP/USD: the past year
EUR: Weak start for Germany
A wider balance of trade margin would usually be a good sign for the German economy. However, February’s surplus of more than €20 billion was driven by falling exports and an even larger drop for imports. A second consecutive fall in key manufacturing added to the impression that the economy was faltering.
GBP/EUR: the past year
USD: Spotlight on inflation
This afternoon’s inflation report could strike a particular chord amid the ongoing crisis. Core and headline consumer price inflation are expected to have registered at manageable annualised rates of 2.5% and 2.4% respectively in February. Anything higher might lead to a few jitters in the current context.
EUR/USD: the past year
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