Trading Desk
The Bürgenstock Oil Put
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Martin Raab
Investment-Stratege
The price of oil determines growth and inflation rates. But who actually determines the price of oil these days?
High above Lake Lucerne, the Qataris have recently positioned themselves stylishly as diplomatic mediators at their leisure complex, the so-called Bürgenstock Resort. The aim was the first step towards a US–Iran peace agreement. The focus was the opening of the Strait of Hormuz, the most important tanker route in the Middle East and Asia. It was an unfortunate coincidence that Donald Trump spontaneously put his signature on the document in Versailles the night before, indirectly stealing the show from the Bürgenstock summit.
As a direct consequence, the crude oil price found itself in the spotlight – prices tumbled from around USD 90 to USD 70, almost like a bale of straw rolling down a steep mountainside. The expectation of the markets is that the tanker fleets held up in the Strait of Hormuz will quickly resume supplying refineries in Asia and that fuel will flow unimpeded through the economy.
This expectation, however, threatens to fall apart. At times Iranian combat drones fly over the sea; at times the U.S. Air Force bombs the Revolutionary Guards. Peace looks different. The latest oil export figures from Saudi Arabia also speak a clear language: in June, 44% less oil was shipped than in February. Export figures from neighbouring states are similarly weak. The situation is even more dramatic in general cargo shipping. Only a few shipping lines are sending their vessels through the Strait of Hormuz. The overall picture is too uncertain. At the same time, Iran’s new appetite for “shipping fees” is growing. On the previously freely passable international sea lane, fees of up to USD 1 million per ship are now being demanded.
At a price of around USD 70, crude oil now counts as one of the most heavily oversold commodities of the year. Thousands of “shorties” have sold heavily short, even though neither the Strait of Hormuz is open nor does a comprehensive peace agreement exist. Moreover, oil supply is anything but secure. Only Donald Trump keeps tweeting enthusiastically about “cheap oil”. In the coming trading days it will become clear how quickly the market realises that crude oil, for delivery dates through December 2026, is anything but easily available. Some traders are already speaking of the “Bürgenstock put” – the new price floor for crude oil. If one believes the voices from Riyadh, the oil price should move between USD 68 and USD 75. Cheap energy therefore remains, for now, a dream from 1001 Nights.
