WTI crude oil has settled above $100 a barrel. Market participants prefer to hedge risks

Monday’s trading session on US stock exchanges was characterized by increased volatility and a pronounced sectoral split. By the end of Monday, the Dow Jones Index (US30) rose by 0.11%. The S&P 500 Index (US500) fell by 0.39%. The Tech Index NASDAQ (US100) closed lower by 0.73%. Despite Jerome Powell’s attempts to calm the markets by stating that the Federal Reserve does not plan to react to temporary spikes in energy prices, this only led to a local rise in the Dow Jones Index. The decline in US Treasury yields, which normally stimulates growth stocks, was unable to offset investor concerns about the security of Iran’s energy infrastructure and the stability of shipping routes through the Red Sea. Instead of buying cheaper tech assets, capital flowed into defensive instruments and energy companies. The elevated fear index confirms that market participants are not yet ready to believe in long‑term de‑escalation and prefer to hedge risks ahead of new developments from the conflict zone.

The Canadian dollar continues its downward trend, falling below 1.39 per US dollar and setting a new low since December of last year. Despite Canada being a major exporter of energy resources and global oil prices surging to 2022 levels due to the effective blockade of the Strait of Hormuz, the loonie is not receiving its usual support from the commodity rally. The main pressure factor is the global strengthening of the US dollar, which benefits from its “safe‑haven” status and expectations of continued Federal Reserve tightening.

European stock markets showed a confident rebound on Monday. Germany’s DAX (DE40) rose by 1.18%, France’s CAC 40 (FR40) closed up 0.92%, Spain’s IBEX 35 (ES35) gained 0.99%, and the UK’s FTSE 100 (UK100) closed up 1.61%. The main driver of growth was the temporary decline in government‑bond yields, which provided necessary support to indices during a period of strong oversold conditions. Despite the positive sentiment in equities, the situation in the energy sector remains extremely tense. Oil prices held at their 2022 peak levels due to ongoing threats from Houthi forces in the Red Sea and Donald Trump’s harsh rhetoric regarding a potential strike on Iran’s oil facilities. Nevertheless, investors temporarily shifted their focus from inflation risks to concerns about a broader slowdown in economic growth, triggering a decline in bond yields.

WTI oil prices are ending March with an unprecedented rally, settling at 101.7 dollars per barrel. Prices have risen more than 50% this month, a direct reaction to the full‑scale conflict in the Middle East that began in late February 2024. The main driver of fear in the market remains the effective blockade of the Strait of Hormuz, through which about 20% of global oil supplies pass. The situation escalated after Donald Trump shifted to a strategy of direct ultimatums. Despite his statements about “progress in negotiations” and a temporary halt to strikes until April 6, the US president clearly outlined targets for the next phase of the operation. If Iran does not immediately open the strait, power plants, oil wells, and the key export hub on Kharg Island will be targeted. Adding fuel to the fire is the expanding geography of hostilities: the involvement of Yemen’s Houthi rebels, who attacked Israel and threatened Saudi infrastructure, has created the risk of a large‑scale regional conflagration. With maritime transport nearly paralyzed and Washington’s diplomatic proposals rejected by Tehran as “illogical,” analysts warn that a surge in oil prices to 120 dollars in April becomes a realistic scenario if strikes on Iranian refineries begin.

The XNG showed a sharp decline, falling more than 5% to 2.866 dollars per MMBtu. The main driver of the drop was updated meteorological expectations predicting unusually warm weather on the US East Coast in the first half of April. The expected warming effectively ends the heating season, sharply reducing gas demand from households and utilities. The geopolitical agenda related to Donald Trump’s ultimatums toward Iran and uncertainty around the Strait of Hormuz has only an indirect impact on the US gas market. Unlike oil prices, US natural gas prices remain insulated from Middle Eastern tensions in the short term due to the self‑sufficiency of the American energy system and the limited dependence of domestic prices on global LNG export flows.

Asian markets also mostly declined yesterday. Japan’s Nikkei 225 (JP225) fell by 2.79%, China’s FTSE China A50 (CHA50) dropped by 0.08%, Hong Kong’s Hang Seng (HK50) declined by 0.81%, and Australia’s ASX 200 (AU200) posted a negative result of 0.65%.

On Tuesday, the AUD held near 0.686 US dollars, trading close to a two‑month low. March became the worst month for the aussie since late 2024, with a cumulative decline of about 3.6%. Although interest‑rate decisions supported the currency at the beginning of the month, by the end of the quarter, market sentiment shifted from fighting inflation to concerns about slowing global economic growth. Minutes from the March meeting of the RBA added uncertainty. After two rate hikes this year, the regulator acknowledged that the prolonged Middle East conflict creates a dual threat: on one hand, it fuels inflation through higher energy prices; on the other, it suppresses business activity. The RBA board emphasized the need for a delicate balance, causing investors to doubt the straightforwardness of further policy tightening.