Oil’s energy ceasefire slide is a trap as THREE supply shocks collide
The oil market is pricing in a peace that hasn’t arrived, and today’s drop in crude could prove one of the costliest misreadings of the year as three separate supply shocks – the energy war between Russia and Ukraine, a hurricane tearing through Gulf of Mexico output, and missile strikes on Saudi Arabia – converge on a world already short of energy.
This is the warning from the CEO of deVere Group, one of the world’s largest independent financial advisory organisations as Brent eased 0.77% to just under $104 a barrel and US crude fell 1.26% to around $90.70 after president Trump announced on social media that Moscow and Kyiv had agreed to stop striking each other’s energy infrastructure.
Nigel Green says: “Markets love an announcement. Traders sold crude within hours of a post, yet nothing physical has changed. No extra barrel has reached a refinery, no damaged plant has restarted.
“A promise is being priced as though it were supply.”
Washington declared a similar truce in mid September. Kyiv voiced doubts over Moscow’s commitment, strikes on refineries carried on and US diesel climbed above $6 a gallon.
Friday’s pledge that Russia will ship more than 4 million tons of diesel to world markets also sits awkwardly beside the export ban Moscow imposed after its own refineries were hit.
“The September truce barely survived the week,” says the deVere CEO.
“Anyone who trusted the dip back then paid for it. Pricing in calm before it’s verified is a bet on hope, and hope has been an expensive commodity in energy markets this year.”
Meanwhile, Hurricane Isaias, the first Atlantic hurricane of the season, forced producers to shut in roughly 1.3 million barrels a day ahead of landfall, about 63% of Gulf of Mexico oil output. The offshore Gulf normally supplies around 15% of all US crude.
At the weekend, Houthi missiles hit the airport in Riyadh, capital of the country holding the largest share of the world’s spare oil capacity, killing 12 people and injuring more than 300.
Nigel Green says: “A storm has knocked out almost two thirds of Gulf output. The kingdom that acts as the world’s shock absorber is under fire in its own capital.
“Elsewhere, the two sides in Europe’s war have shown repeatedly they’ll target energy whenever it suits them.
“Any one of these would justify a risk premium.
“All three at once, heading into winter, suggests the floor under oil sits well above current trading.”
Iran’s foreign minister has since phoned his Saudi counterpart and offered to help open dialogue between Riyadh and the Houthis, a gesture some traders read as calming.
“Diplomacy is welcome and I hope it gains traction,” explains Nigel Green, “But a phone call doesn’t rebuild an airport or restore confidence in Gulf supply routes overnight.”
The deVere CEO also points to the wider economic fallout. Energy is one of the fastest routes from conflict to consumer prices, and central banks are watching closely.
He says: “Oil above $100 feeds straight into transport, food and heating bills. If it holds there through winter, hopes of rate cuts in major economies get pushed back, and bond and equity markets will need to reprice.”
Yet Nigel Green argues the turbulence also carries opportunity for those who prepare.
“Every major energy shock of the past half century has redrawn the investment map,” he says.
“Energy security, grid infrastructure, storage and efficiency all moved from the fringes into the mainstream on the back of crises like this one.
“Investors who had already built resilience, spreading exposure across regions and asset classes and holding genuine protection against inflation, came through those periods stronger.”
He concludes: “Announcements can move prices for an afternoon. Barrels, storms and missiles set them for the season, and markets will catch up with physical reality sooner than many expect.”