WTI crude oil breaks $100 for the first time since May as markets price a prolonged war

The useful part

Oil prices are surging as traders price in a prolonged US-Iran conflict, with the prospect of a resolution before November fading. Trump said yesterday that he expects the war with Iran to end immediately after the US midterm elections on November, effectively acknowledging that the conflict is likely to continue through at least the election period. That is forcing markets to reassess earlier expectations that the conflict could wind down sooner.

How it works

• Reports also suggest senior Trump advisers are preparing for the possibility that the war could last well beyond November, highlighting the lack of a clear exit strategy.
• Brent crude has pushed firmly above the $100 per barrel threshold, reaching around $105, while WTI is trading around $100.
• The move reflects a market that is increasingly pricing a longer period of constrained supply.
• The timing of the war's eventual end has therefore become a key driver for oil.
• If traders continue to push the expected resolution further into the future, the risk premium embedded in crude prices is going to increase.

What to take from it

This is bad news for risk assets and bonds, with the US 10y Treasury yield approaching a new cycle high (see here why it's happening).

Details worth keeping

This article was written by Giuseppe Dellamotta at investinglive.com.