Oil heading toward $96: Asian stocks decline amid expectations of US rate hike

The price of crude oil approaching $96 a barrel produced marked declines on Asian stock markets, according to the reconstruction by QuiFinanza, based on market quotations. The movement does not stem from a single macroeconomic data point but from the combination of an ongoing geopolitical crisis and a physical energy market already in precarious balance.

The geographic focal point around which the tension revolves is the Strait of Hormuz, a maritime passage through which approximately one-fifth of global consumption of oil and refined products has historically transited. This is a share with no immediate alternatives: the pipelines that bypass the strait have limited capacity compared to the volumes that pass through it by sea. For this reason, any risk signal regarding navigation translates into a price premium well before any actual supply disruption is recorded.

The reserves side has contributed to making the picture more rigid. US stockpiles decreased by 2.6 million barrels, a decline that reduces the margin with which the system can absorb potential disruptions. When reserves thin out, the same geopolitical news produces wider price swings, because the buffer that normally cushions shocks from the supply side is missing.

The next step concerns market operators. According to the same reconstruction, the market is not merely assessing the impact of individual hostile episodes, but the consequences of a prolonged conflict on the overall availability of crude oil. This is a significant difference: in the first case, the price increase tends to be reabsorbed quickly, in the second it enters medium-term expectations.

Hence the reaction on monetary policy expectations. Fed Funds futures contracts indicate a probability close to 67% of a 25-basis-point rate hike at the Federal Reserve’s September meeting. This is a figure that measures market positioning, not a central bank decision: the probabilities implied in prices change rapidly and have been wrong in direction in the past. The underlying logic is, however, discernible, and the source makes it explicit: more expensive energy reduces central banks’ room for maneuver, because it reignites inflation risk.

The link between the two levels — more expensive energy and expectations of higher rates — is what the available sources document regarding the movement of Asian stock markets. They do not, however, provide a breakdown by country or sector, nor data on the share of crude oil imported by individual economies in the region: this editorial team does not fill the gap with its own estimates.

The other limitations of the above should also be stated. The situation is evolving and the figures reported are the most recent verifiable at the time of publication: the price of the barrel, the level of stockpiles and the probabilities implied in futures contracts are continuously updated. On the international context of the crisis, the second independent source used is the editorial team of NPR. Neither source provides quantified estimates of the impact of the price increase on consumer prices.

Three observable elements remain for the coming weeks: the weekly trend in US stockpiles, any recourse to strategic reserves by importing countries, and decisions on production volumes by major exporters. The Federal Reserve meeting is set for September; as of today, futures contracts assign a probability close to 67% to the 25-basis-point hike.

Sources: QuiFinanza (market quotations and Fed Funds futures contracts); NPR (editorial team).