Changing expectations

What matters most in oil markets is not today's spot price, but what traders are pricing twelve months ahead.
The 12-month Brent futures price has moved towards USD 90 per barrel, its highest level since the aftermath of Russia's invasion of Ukraine in 2022 and above its spot price. Gasoil prices have risen even more sharply, driven by widening refining margins.
There is little doubt that an energy shock of this magnitude will feed through to the real economies of the developed world, pushing inflation higher, squeezing corporate margins and household purchasing power, and ultimately weighing on economic growth.
The relative political silence ahead of the US midterm elections may prove temporary. President Trump has now declared that it is "getting to be decision time" on whether to reach a deal with Iran or "finish it off". This hardly suggests an imminent easing of geopolitical tensions.
Markets are changing their expectations. As investors, we need to continue adapting our portfolios to this new reality.