Markets have staged a sharp reversal in sentiment over the past few sessions as concerns over a prolonged Middle East energy shock continue to ease. Expectations that shipping through the Strait of Hormuz could soon resume have driven a broad risk-on move, with Brent crude falling back below $80/bbl, short-term inflation expectations retreating to multi-month lows, and sovereign bond yields extending their decline. Equities responded positively, with the S&P 500 rising 1.79% and the STOXX 600 gaining 0.73% to fresh record highs, while semiconductor stocks outperformed as investors rotated back into the AI-driven capital expenditure theme.

The improvement in risk appetite has been fuelled by reports that Qatar has circulated a draft proposal aimed at reopening shipping through the Strait of Hormuz. US Treasury Secretary Scott Bessent also indicated that an agreement could be reached "today or tomorrow," while reports suggest negotiators are considering a 60-day interim arrangement that would allow Gulf-bound vessels to transit Iranian waters and outbound traffic through Omani waters without transit fees. Although previous negotiations have failed to produce a lasting agreement, markets are increasingly positioning for a near-term de-escalation.

Energy markets have been the primary beneficiary of the improving geopolitical outlook. Brent crude declined 5.26% yesterday to $79.36/bbl and is trading around $78.80/bbl this morning, leaving prices more than 10% below last Friday's highs. WTI crude fell 5.69% to $75.77/bbl and is currently trading near $75.20/bbl, while European natural gas prices have dropped to their lowest level in almost three weeks as supply disruption concerns continue to fade.

Attention now turns to today's US Energy Information Administration (EIA) weekly petroleum status report. Following last week's larger-than-expected 7.2 million barrel draw in crude inventories, consensus expectations point to a more modest decline of around 1.5-2.5 million barrels. Traders will also monitor gasoline and distillate inventories for further insight into seasonal fuel demand and refinery utilisation. A larger-than-expected crude draw would suggest underlying demand remains resilient and could provide near-term support for WTI prices, while an unexpected inventory build would likely reinforce the recent downward pressure on crude as geopolitical risk premiums continue to unwind.

Key Support and Resistance Levels

Resistance Level 1: 8,013

Resistance Level 2: 8,370

Resistance Level 3: 8,660

Support Level 1: 7,330

Support Level 2: 7,150

Support Level 3: 6,834

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