The man at the pump next to me on Thursday evening stood watching the numbers roll with the expression people usually save for a parking fine. He clicked off at a round figure, looked at it, and shook his head. He will almost certainly never sail through the Strait of Hormuz. Neither will I. And yet that narrow stretch of water between Iran and Oman had more say over his evening than he did.
A deal in stages
This week the story moved again. On Thursday, Reuters reported that American and Iranian negotiators, meeting in New York on the sidelines of the UN General Assembly, were exploring a phased deal. In the first stage, Iran would reopen the Strait of Hormuz and the United States would lift its blockade. Later stages could cover access to frozen Iranian assets. A senior Iranian official described solving the crisis in stages as one way forward, while seasoned observers were far from certain it would get done.
I wrote about an earlier chapter of this conflict in The US Iran Deal: What Peace Means for Your Portfolio. This is a later, messier phase, and the word doing the heavy lifting is phased. A phased deal means phased relief, if it comes at all.
The week in one price chart
Oil spent the week being pulled in two directions. On Thursday, Brent crude jumped towards $108 a barrel after Saudi Arabia said it had intercepted missiles launched by Houthi fighters, then gave back part of the rise once the reports of a staged deal spread. By Friday morning, according to The National, Brent was trading at around $105 and American crude at around $93.
The detail I found most telling was the traffic. Only 13 ships crossed the strait on Thursday. In calmer times, this is one of the busiest shipping lanes in the world. When so little oil is getting through, even a rumour of reopening is worth several dollars a barrel, and a single missile interception is worth several dollars back the other way.
Why your pump is slower than the headlines
Here is the part that tends to irritate people. When crude jumps, pump prices seem to follow within days. When crude falls, the pump takes the scenic route home. Retailers and wholesalers buy fuel in advance, so the price you pay is partly yesterday’s oil, and nobody rushes to cut prices while the next headline could push costs straight back up. So even if a deal is signed next week, I would not expect the forecourt to celebrate at the same speed as the trading screens.
How I read it
I do not trade oil on headlines. What moves the price day to day right now is the probability of a deal, not a deal itself, and probabilities change every time somebody speaks to a journalist. That is a game for people with faster fingers and stronger stomachs than mine.
Instead, I watch what oil does to everything else. Energy feeds into the cost of the weekly shop, into inflation figures, and eventually into interest rate decisions, which reach borrowing costs and my savings. So the question I ask is not whether the strait opens on Tuesday. It is whether energy costs stay high long enough to keep inflation sticky through the winter.
The takeaway
The strait will reopen one day. When it does, crude will likely fall fast, and petrol will likely fall slowly. The man at the pump will notice the second part far more than the first. Knowing the lag exists does not make the bill smaller, but it does make it less of a mystery, and I have found that a bill I understand is a bill I can plan around.
The Jacqueline Brand — knowledge builds confidence, and confidence builds wealth. This is editorial commentary for information and education only. It is not financial, investment or professional advice, and nothing here is a recommendation to buy or sell any investment. The Jacqueline Brand is not authorised or regulated by the Financial Conduct Authority. The value of investments can fall as well as rise, and past performance is not a guide to future returns. Figures were correct at the time of publication. Always do your own research and consider speaking to a regulated adviser. Where cryptoassets are discussed, they are high risk and largely unregulated in the UK, and you could lose all the money you invest. The Collection
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