Oil price rally stalls, but volatility indicators flash warning signals

Source: Global Market News

Last week, after Brent crude futures surged nearly 16%, traders have remained cautious about chasing new highs, concerned that any news about renewed negotiations between the US and Iran could quickly shift market direction. However, an indicator measuring crude oil volatility shows that the risk of another price spike remains, while the protracted conflict continues to exert pressure on an already fragile stock market environment.

Earlier conflicts between the US and Iran did not have a significant impact on the stock market, as investors believed that a ceasefire agreement would restore shipping through the Strait of Hormuz to normal quickly. Early data also supported this optimistic expectation to some extent, but the situation has now deteriorated to the point where shipping has nearly come to a standstill. Polymarket contracts show the probability of shipping through the strait returning to normal before September 1 is only 8%, compared to as high as 70% in mid-June.

The sharp correction in the global semiconductor sector seems to be mainly due to the unwinding of leveraged positions and rapid structural shifts within the AI ecosystem. However, high energy prices have weakened expectations for global inflation to slow down, forcing central banks to maintain tight policies and leaving limited room for error in the equity markets. As fuel prices overtake near-term crude prices, the risk of a further surge in oil prices is mounting. Meanwhile, crude oil volatility has once again climbed above 60.