MUFG: Energy - FJElite

The other main development overnight was from the Middle East where it has been reported that US forces destroyed five Iranian tankers carrying crude oil in response to two attempts to hit a US Navy warship with ballistic missiles in as many days according to the US Central Command. The Iranian ships belonged to the Islamic Revolutionary Guard Corps. The ongoing tit-for-tat strikes and fading hopes for military de-escalation in the region are contributing to renewed upward pressure for energy prices ahead of the US mid-term elections. The price of Brent has risen back to within touching distance of USD100/barrel, and the price of natural gas in Europe is now up by just over 90% since the lows in late June.

The unfavourable energy price developments will continue to encourage expectations that central banks will have to be more active in tightening policy and thereby maintaining upward pressure on global bonds yields. Higher energy prices have also helped to lift Bloomberg’s commodity price index to the highest level since 2012. It helps to explain why commodity-related currencies have outperformed over the last couple of months including the Australian dollar, Norwegian krone and Canadian dollar amongst G10 currencies. We expect the current favourable external backdrop for commodity currencies to continue in the near-term so long as global growth remains resilient to the energy price shock. According to Bloomberg, global economic data has been surprising to the upside in recent months as fears over a slowdown in global growth have not yet materialized. Positive economic surprises have been running at their highest levels since early in 2023.