Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / How Crude Oil Plunged Despite Iran Strait of Hormuz Tensions
Transcript
- Lucas: Crude oil had a rough week. WTI settled around $69.42 Friday, down more than seven percent in five days. Brent wasn't much better at $72.72, off almost seven percent. Luna: And this is the same week we got headlines about Iranian drone attacks on ships in the Strait of Hormuz. You'd think that would push oil higher, not lower. Lucas: Right — it's a textbook example of a geopolitical headline that the market basically shrugged off. Or rather, it priced in the risk and then moved on. Let's break down why. Luna: Let's start with the Strait. Roughly twenty percent of global oil transits through there. Any disruption should matter. Lucas: It should, and it did for about a day. But the market looked at the specifics. The drone attacks hit a couple of commercial vessels, not tankers, and there was no actual blockage. Iran and the US both signalled they didn't want a full escalation. So the risk premium faded fast. Luna: Meanwhile, the macro backdrop was shouting louder. Inflation came in hot again — CPI for May was up to 334, that's about four percent year-over-year. The Fed isn't cutting rates anytime soon. Lucas: And that's the real story. Higher for longer rates hit demand expectations. If you're a commodity trader, you look at the Fed and think: economic slowdown, less oil consumption. That outweighs a brief flurry of headlines. Luna: Also, the ten-year breakeven inflation rate ticked up to 2.21 percent. That tells me the bond market still sees inflation as sticky. No relief from monetary policy. Lucas: Exactly. So you have this tug of war: a supply-side risk from the Strait versus a demand-side drag from rates and inflation. This week, demand fears won. And the energy sector reflected that — the XLE energy ETF was down slightly, but ConocoPhillips dropped over three percent in five days. Luna: Conoco fell more than crude itself. That's worth pausing on. Lucas: It is. Because Conoco is an exploration and production company — it's leveraged to the oil price. When crude falls, their revenues drop faster proportionally. Higher costs for drilling and refining also compress margins. So the stock amplifies the move in the underlying commodity. Luna: That makes sense. Even ExxonMobil and Chevron were down, but less. Conoco has a higher beta to oil. Lucas: Right. And this ties into a bigger point about how investors should think about energy exposure. If you own an E&P stock, you're not just betting on oil's direction — you're betting on the volatility of that direction. When crude drops seven percent, a stock like Conoco can drop twice that. Luna: So what's the takeaway for someone who watches these headlines and wonders whether to buy the dip? Lucas: The key is to separate the headline from the fundamentals. The Strait of Hormuz story is real, but unless it disrupts actual supply for weeks, the market will look through it. The bigger forces right now are interest rates, inflation, and global economic growth. Those are what drive sustained moves. Luna: And on that note — a couple of dollars a month is genuinely what keeps these episodes coming. If walking through the economy with us has made something click, you can support the show at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small thing that makes a real difference for us. Keeps everything ad-free and focused on the data. Luna: So back to oil — do you see any catalyst that could flip the narrative back to supply risks? Lucas: Maybe if we see actual tanker disruptions or a blockade. But right now, the market is telling us it's not worried. The backwardation in the futures curve has flattened. That's a sign that near-term supply anxiety is easing. Luna: And the fact that natural gas actually rose this week — up one and a half percent — shows it's not a broad commodity sell-off. It's oil-specific. Lucas: Correct. Gas has its own dynamics — storage levels, weather forecasts. Oil is carrying the weight of macro fears. Until we see a real supply shock, crude probably stays under pressure. Luna: So watch the Strait headlines, but keep one eye on the Fed. Lucas: Always. That's the commodities economy in 2026.