Relief for businesses, top bank with oil ready to flow
· Michael West
A ceasefire between the US and Iran has delivered a much-needed reprieve for Australian businesses and the Reserve Bank.
Oil prices fell almost 15 per cent to $US95 a barrel after President Donald Trump announced on Wednesday the US would pause hostilities for two weeks while negotiations for a permanent peace continued.
Visit syntagm.co.za for more information.
Iran’s confirmation it would allow shipping through the Strait of Hormuz over the same period lifted hopes of a normalisation in fuel supplies and a respite in inflation.
Although the prospects of a long-term resolution remained uncertain, having the Strait open for even two weeks allowed a backlog of oil to pass through and supply chains to recover, Oxford Economics Australia lead economist Ben Udy said.
The two-week pause in hostilities in Iran has raised hopes of a normalisation in fuel supplies. (Joel Carrett/AAP PHOTOS)“That’ll allow the deficit of oil that we’ve seen in the global economy to start to close, and will help a lot of those supply chains recover, at least in the near term,” he told AAP.
Risk-on sentiment propelled equity markets sharply higher following the agreement. Australia’s ASX200 closed up 2.6 per cent.
But markets are likely to experience increased volatility over the next two weeks as traders pore over additional information that comes to light about a potential long-term deal, Mr Udy said.
“Irrespective of what happens in two weeks, the developments today do make it easier for businesses to continue operating in Australia,” he said.
“With the benefit of a bit of foresight, companies are probably able to prepare a little bit better for any potential future disruptions to the Strait.”
The Australian share market has bounced back big time after a run of losses due to the Iran war. (Susie Dodds/AAP PHOTOS)It was essential Australia used the two-week reprieve to replenish fuel stockpiles and bolster resilience, Australian Chamber of Commerce and Industry chief executive Andrew McKellar said.
“News of a two‑week ceasefire gives some relief, as it provides crucial breathing space and the opportunity to progress work in improving fuel security,” he said.
“However, the risks have not disappeared. Businesses remain exposed to global supply shocks, and Australia cannot assume that the break in conflict will hold.”
The benchmark oil price remained well above the pre-war level of about $US70 a barrel.
Commonwealth Bank commodities analyst Vivek Dhar said there was a risk a comprehensive deal would fail to materialise and energy prices would remain elevated for an extended period.
Motorists have enjoyed some temporary relief from rising fuel prices. (George Chan/AAP PHOTOS)“Iran’s control over the key waterway provides a means for war reparations via tolling and deters US and Israel from attacking Iran again,” he wrote in a research note.
“But Israel and other countries in the Persian Gulf will be deeply uncomfortable with such a concession.
“Therefore, while oil and LNG prices can fall materially, there is still scope for a significant geopolitical premium being entrenched for the foreseeable future based on the details of the comprehensive agreement.”
Mr Udy still expected the Reserve Bank to lift rates in May, even though the reopening of the Strait would give the bank a bit more breathing room.
“The increase in fuel that has already happened will put pressure on inflation in both March and April,” he said.
“The other parts of supply chains that have been affected – things like fertiliser affecting food prices, helium exports impacting (computer) chips – are going to have long-lasting impacts on supply chains.”
Consumer sentiment has bounced back from record lows, according to the ANZ-Roy Morgan index. (Susie Dodds/AAP PHOTOS)News of the ceasefire might buoy consumer sentiment, which bounced back from record lows last week as motorists enjoyed some temporary relief from rising fuel prices.
Household sentiment picked up 3.5 points to 62.3 in the week leading into Easter, coinciding with the government’s decision to cut the fuel excise, according to the ANZ-Roy Morgan consumer confidence index.
“All subindices strengthened and inflation expectations eased slightly,” ANZ economist Sophia Angala said.