- Physical market indicators still signal tightening, despite recent weakening of futures contracts.
- The increased negative correlation between gold and oil, yields, and the dollar shows how strongly oil currently influences various asset classes.
As Ole Hansen, Head of Commodity Market Strategy at Saxo Bank explains, oil still has an impact far beyond the energy market itself. More than any other asset in the current environment, oil prices shape broader market sentiment by influencing inflation expectations, central bank stance, Treasury yields, and the U.S. dollar. In practice, oil has become the main transmission mechanism for markets.
Results across asset classes increasingly reflect this dependency. Gold, despite ongoing geopolitical uncertainty, struggles to generate lasting demand. Higher oil prices heighten concerns about persistent inflation, lift bond yields, and strengthen the dollar, creating less favorable conditions for income‑generating assets. The elevated negative correlation between gold on one side and oil, yields, and the dollar on the other is now evident. Until this relationship changes, oil will likely remain the dominant macroeconomic factor in markets.
Oil in the rhythm of political signals
Recent price moves again showed how sensitive the market is to political rhetoric. Oil prices plunged sharply after Trump stated that the United States is in the “final stage” of talks with Iran, boosting hopes that a diplomatic breakthrough could ultimately ease supply disruptions. Those hopes weakened after further remarks warning that “we will face more fighting if Iran does not get smart.”
Markets increasingly appear trapped between these alternating signals. The result is significant price volatility, with no single decisive outcome: the reopening of the Strait of Hormuz and the normalization of regional energy flows.
At the same time, market attention is shifting from rocket launches to logistics and storage. Kpler data show that since mid‑April no Iranian‑oil tanker has crossed the blockade line, and oil loads fell from about 2.1 million barrels per day before disruptions to the current 640 thousand barrels per day. Simultaneously, floating stocks in the Gulf rose from about 23 million to 42 million barrels, and another 15 million barrels are accumulating onshore. These growing stocks represent barrels that are stuck, not those removed from the market—and they form a pressure point the U.S. administration hopes to use to ultimately bring Iran back to negotiations.
However, some cautious movement signals have emerged. Limited tanker traffic from China and South Korea has recently resumed, and India is preparing to resume receiving cargo from Middle Eastern suppliers. These volumes remain a fraction of normal levels and do not yet indicate significant normalization.
The latest weekly EIA oil market report provided further evidence of ongoing tightening in the physical market. Total U.S. oil inventories fell by a record 17.8 million barrels, although nearly 10 million barrels of that decline came from releases from the Strategic Petroleum Reserve. Commercial oil inventories, however, fell by a significant 7.9 million barrels, and Cushing stocks fell for the fourth week in a row.
Oil under pressure from inventory and trade data
Imports rose, supported by Venezuelan oil deliveries that reached the highest level since 2018, but this was largely offset by a further increase in exports as international demand continued to drive U.S. light sweet oil to global markets.
Distillate inventories rose slightly but remain close to the lowest seasonal levels in over two decades, reinforcing signals of sustained tension in the mid‑distillate segment.
Meanwhile, Goldman Sachs estimates that visible global oil and petroleum product inventories are falling at a record pace, and this month they have declined by 8.7 million barrels per day to date.
For now, futures prices may still react to diplomatic developments and changing political rhetoric. If they do not translate into significant increases in physical flows, price weakness may remain largely driven by expectations rather than fundamentals. Futures react to news; physical markets still rely on actual deliveries.
While Brent remains in a sideways trend, diesel and jet fuel prices fell – source: Bloomberg and Saxo
EIA data showing a decline in oil and petroleum product inventories and a sharp rise in exports – source: Bloomberg and Saxo.
