Oil prices remain anchored around the $100 per barrel area as the halfway point of October arrives, despite claims of a ceasefire in the Russia-Ukraine war.
US President Donald Trump made two significant interventions over recent days. First he announced he had struck a deal with Vladimir Putin for Russia to supply an initial 300,000 tonnes of diesel to global markets, scaling up to 4,800,000 tonnes over the coming months.
Trump followed this by declaring Russia and Ukraine had agreed to an ‘energy ceasefire’ at his request, which appeared to mean while the two sides would still be at war, they will not strike each other’s oil facilities.
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The US mid-term elections take place on 3 November, and high fuel prices are adding to dissatisfaction among the American electorate.
Any potential reduction in the intensity of the conflict on Europe’s eastern flank looks set to be undermined by further deterioration in the Middle East situation.
Yemen’s Houthis struck an airport in neighbouring Saudi Arabia with rockets, causing casualties and escalating the long running hostilities between the two nations.
A fully fledged armed conflict directly involving Saudi Arabia on a large scale could be devastating to energy markets already strained by the blockage of the Strait of Hormuz.
That situation has no end in sight, with the US and Iran remaining entrenched in their hostile positions. If anything, fresh escalation looks more likely than peace at this point.
Equity investors continue to take all this in their stride, with much of it seemingly priced in long ago. The FTSE 100 rose 0.57% in morning trading to hit 10,612 points, a short hop from its record level just above 10,900.
Susannah Streeter, chief investment strategist at Wealth Club, said: ‘’Trump’s deal with Putin to import Russian diesel helped ease oil prices slightly, but it has failed to make a significant dent in the cost of crude, given the situation in the Middle East remains so tense.
“Brent crude had edged down to $103 a barrel but has begun rising again, lifting back above $104 in early trade on Monday.
“It remains more than 40% higher than before the conflict with Iran broke out. The devastating Houthi attacks on Riyadh airport demonstrate how complex the crisis has become, with the Iran-backed rebels increasingly audacious and destructive in their strikes on Saudi Arabia.
“The slight dip in prices does appears to have delivered some respite on financial markets, with President Trump clearly anxious to bring down fuel costs ahead of the crucial mid-term elections. The FTSE 100 has started the week on the front foot, but there is still nervousness around.”
Russ Mould, investment director at AJ Bell, said: “Donald Trump’s claim that Russia and Ukraine had entered an ‘energy ceasefire’ has not had a significant impact on energy prices, leaving the two major oil benchmarks, Brent and WTI, at elevated levels.
“There is scepticism over any energy ceasefire given Russia attacked various energy facilities in Ukraine after Trump made his statement.
“The news follows a pact by Trump with Russia on diesel supplies to seemingly try and lower energy prices before the midterm elections to help reverse his waning popularity with voters.
“Energy market experts believe the deal to import certain amounts of Russian diesel into the US won’t move the needle as the quantities are small and any impact won’t be felt before the mid-terms,” Mould continued.
“Financial markets have taken even the smallest pullback in energy prices to be a win. European equities rose on the news, including a 0.6% gain in the FTSE 100 which was powered by a rally in banking shares.”
