MUFG notes that Oil prices have declined as markets reassess supply risks tied to the US-Iran war and regional chokepoints. Saudi Arabia’s efforts to restore the East-West pipeline and continued tanker traffic through the Strait of Hormuz, alongside diplomatic moves by the US, Gulf nations, China and Iran, have supported a rally in risk assets and global duration.

Supply concerns ease with diplomacy

“Oil prices fell, risk assets rallied, while global duration did better after enduring a meaningful sell-off over the past few weeks.”

“Part of this was driven by some easing of oil supply concerns as the markets looked forward the next round of diplomacy that will shape the US-Iran war.”

“Saudi Arabia in particular has moved to restore the damaged East-West pipeline to its Red Sea coast, aiming to return about half its capacity within days.”

“At the same time, some tankers continue to traverse the contested Strait of Hormuz.”

“Reuters also reported that Beijing privately asked Iran to help rein in Houthi militants after an appeal to China by Riyadh, with the militant group making advances in Yemen towards the Bab el-Mandeb chokepoint in recent days.”