Oil: Higher prices, limited margin pressure – UBS

UBS's Chief Economist Paul Donovan notes that Oil markets showed a muted reaction to reports of US–Iran exchanges in the Gulf, as investors had already discounted earlier US optimism and focused on Iranian comments. He argues Oil prices remain below levels needed to balance supply and demand once reserves are depleted, and warns that political pressure for lower retail Oil prices could worsen imbalances.

Muted reaction and consumer pass-through

"Markets have had a muted reaction to reports of the US and Iran exchanging fire in the Gulf."

"Investors had tended to dismiss US President Trump’s weekend optimism and focused instead on comments from Iran, so an escalation was not unexpected."

"Prices are still not at levels that would bring supply and demand into balance (once reserves are exhausted), and various politicians globally talking of subsiding retail oil prices will make things worse."

"Higher oil prices are being passed through to consumers which means profit margins are not being particularly affected."

"This can continue as long as consumers are using savings to pay for higher oil costs."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)