Geopolitical Risk & Oil Market Impact - Oil prices initially surged by 10% following Israel's strikes on Iranian nuclear sites, indicating a risk premium situation where prices exceeded fundamental values [1] - The market's reaction, with an initial jump of almost 6% that later reduced to 13%, suggests that the absence of disruption to oil flows is a key factor [2] - The market is closely monitoring Iran's potential response, including possible actions against ships connected to the US, Israel, or Western allies in the Strait of Hormuz [4] - The evaporation of the risk premium is likely until a significant response from Iran occurs [5] Strait of Hormuz & Oil Trade Disruption - The potential closure of the Strait of Hormuz, though not solely decided by the Iranian parliament, remains a concern [3] - Some supertankers have been observed making U-turns near the Strait of Hormuz, signaling potential risk aversion among shippers [5] - Diversions of ships are currently infrequent, but the market is closely analyzing any indications of changes in oil flows [7][8] - Unlike the Red Sea situation, the Strait of Hormuz is crucial for accessing certain oil and LNG shipping ports, making it irreplaceable [8] - A significant avoidance of the Strait of Hormuz by ships would materially impact the amount of oil and gas on the water [9]

Investment Rating - The report maintains a base case for oil prices in the low to mid $60s for the remainder of 2025 and $60 in 2026, despite geopolitical concerns [6][10]. Core Insights - Geopolitical risks have increased due to Israel's attack on Iran, raising the worst-case scenario probability for oil supply disruptions to 17% [3][4]. - The recent spike in oil prices by 5% reflects heightened security risks in the Middle East, with a 7% probability of a worst-case scenario where supply impacts extend beyond Iranian exports [6][10]. - The US aluminum tariffs have created significant uncertainty in the aluminum market, with the US Midwest premium (MWP) currently insufficient to incentivize necessary imports [7][10]. Oil Market Summary - Global oil demand averaged 103.9 million barrels per day (mbd) in June, showing a year-over-year increase of 560 thousand barrels per day (kbd) [10]. - Total liquid inventories surged by 34 million barrels (mb) in the first week of June, with crude oil stocks rising by 27 mb [10]. - An attack on Iran could potentially spike oil prices to $120, impacting US Consumer Price Index (CPI) to 5% [6]. Aluminum Market Summary - The surprise increase in US aluminum tariffs to 50% has led to a sideways outlook on aluminum prices, with participants at the Harbor Aluminum Summit expressing uncertainty about future demand [7][10]. - The current MWP is around 60 cents per pound, which barely covers the tariff, indicating a need for the MWP to rise if the tariff remains unchanged [10]. - Existing inventory can buffer the market temporarily, but it will deplete quickly, leading to potential price increases if the tariff situation does not change [10]. Metals Activity Summary - China's steel output has slowed sharply, reaching its lowest rate since 2018, with a 5% drop compared to previous months [9]. - The annualized run-rate of steel production in China is at 967 million tons (Mt), suggesting a potential peak in production for 2025 [9].

Market Risk & Geopolitical Factors - Equity markets are experiencing nervousness potentially due to Middle East tensions and potential US involvement [1] - Low liquidity is hindering aggressive trading, with the market drifting and awaiting the next major catalyst [3] - A negative surprise catalyst is deemed more likely given optimistic pricing on trade and the tax bill [3] Central Bank Policies & Currency Dynamics - The Fed's message regarding stagflation risks is slightly negative for stocks and the dollar [2][10] - The Swiss National Bank (SNB) is being watched for a possible move to negative interest rates [4] - The Swiss franc is viewed as a financial asset similar to gold, serving as a portfolio diversification asset [5][6] - Geopolitical factors, not fundamental inputs, primarily drive the Swiss franc [8] Dollar Performance - The dollar's recent strength is marginal, around 01% [9] - The Fed's stagflation message is not particularly positive for the dollar, and the short squeeze appears to be losing momentum [10] - The world is structurally overexposed to the dollar [10]

Geopolitical Impact on Oil Prices - Oil prices have moved dramatically higher due to geopolitical tensions, with the current price movement largely attributed to a geopolitical premium [2] - The market is highly reactive to geopolitical headlines, causing volatility as traders assess the implications for supply and oil prices [4] - Current oil prices are around $74, and while higher than the $60-65 range before the geopolitical events, they are not yet at levels indicating supply interruption concerns [3][4] OPEC+ and Market Dynamics - OPEC+'s decision to bring forward supply surprised market participants, potentially preventing even higher oil prices [6] - Political considerations play a significant role in OPEC+ decision-making, particularly in maintaining group cohesion [7][8] - OPEC+ initially believed the market could absorb increased barrels until the first half of the year, but geopolitical concerns have altered this outlook [9] - OPEC still possesses considerable spare capacity that could be brought online, though escalating conflict impacting production and export facilities could drive prices even higher [10]

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