Oil: Supply risks and central bank inflation worries – BNY
BNY’s Geoff Yu highlights that Brent has approached $110 as Houthi advances near the Bab el-Mandeb Strait raise concerns over Red Sea shipping and broader supply chains. The report notes record U.S. diesel prices and IEA projections of tighter global Oil balances, stressing that central banks like the ECB and FOMC face mounting inflation risks they cannot fully offset through monetary policy.
Energy shocks drive policy concerns
"Oil markets remain nervy. The Houthis’ rapid advance across strategic areas near the Bab al-Mandeb Strait has raised the prospect of further price pressure. Any disruption to Red Sea transit would affect supply chains far beyond energy."
"The assumption is that today’s U.S. CPI release will anchor expectations ahead of the upcoming FOMC decision, but energy prices increasingly point to a different regime. Diesel prices in the U.S. have exceeded $6 per gallon for the first time, and the FOMC will be acutely aware of the broader inflation risks given diesel’s importance across domestic and international supply chains, even if the direct impact is less visible to consumers at the pump."
"The ECB hiked rates as expected, but communication from multiple Governing Council members overnight suggests markets should expect more tightening by default, even if that is not the preferred policy path. Bundesbank President Joachim Nagel singled out energy as the determining factor for further hikes."
"The IEA has reported that global oil markets tightened sharply in August. World oil demand is now forecast to decline by 2.5 mb/d in 2026, 940 kb/d deeper than last month’s outlook, as stalled U.S.-Iranian negotiations push a normalization of flows back to next year."
"On the supply side, global oil production fell 1.6 mb/d m/m to 100.1 mb/d in August, with more than 10 mb/d of Gulf output still shut in. Total supply is projected to drop by 5.7 mb/d this year before recovering in 2027."
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