What next for the oil price?

• Oil keeps on flowing
• Why oil price gains are limited
• The dollar index flirts with 1-year lows
• US stocks get a boost from Bitcoin
• Energy and Defense weigh on the FTSE 100

The oil price has been on a wild ride over the last three days. Brent crude has traded in a range as high as $81 per barrel, and as low as $66 per barrel. The price is currently up 1.5% from the low at $68 per barrel. The oil market has been a key gauge of risk sentiment during the Iran/ Israel conflict. Even when the US got involved, the oil price did not surge anywhere near $100 per barrel, as some expected.

Overall, the oil price, which has struggled to stay above $70 per barrel this week, is acting like this will be a brief conflict, that will not escalate. Reports on Wednesday suggests  that the US’s involvement in the conflict and its strike against Iran’s nuclear facilities, did not obliterate Iran’s nuclear capabilities. This is why Iran’s retaliation against the US was moderate: they hit a US air base in Qatar that they most likely knew was empty.

Oil keeps on flowing

The overriding concern for the oil market is the flow of global oil. In the midst of this conflict, oil has continued to flow easily around the world. The Strait of Hormuz remains open, it does not look like Iran will close it, which is why the premium attached to the oil price has been pared back in recent sessions. Donald Trump has said that he is not looking for regime change in Iran, and the US envoy to the Middle East said late on Tuesday that Iran and the US had been talking, and he was hopeful of a peace deal. This could limit further upside for oil, as traders seem willing to sell oil on any significant development in the Middle East.

Why oil price gains are limited

The backdrop is not constructive for the oil price right now, which is another reason why geopolitics is only having a fleeting impact on commodity prices. Opec + is boosting oil supply, the IEA’s Oil Report for June reported that global oil supply rose by 330,000 barrels per day in May, and supply is now 1.8 million barrels per day above the level it was a year ago. Global oil stocks also rose for a third consecutive month. The IEA sums up the current situation: ‘In the absence of major disruption, oil markets in 2025 look well supplied’ as the global oil supply is expected to increase both this year and next.

That, in a nutshell, is why the oil price remains subdued, and why traders are willing to bet that inflation will not rise on the back of this conflict and why an August rate cut from the Bank of England, and a September cut from the Federal Reserve are still on the cards.

The dollar index flirts with 1-year lows

The dollar continues to move closely with the oil price. It is one of the weaker currencies in the G10 FX space on Wednesday, as the brief surge in the dollar fades. The dollar index is getting close to the low of the year so far at 97.60, a break below this level could see a return to 95, the low from 2022. A haven bid can’t prop up the dollar, a weak economic back drop, global diversification away from the dollar and the prospect of more fiscal woes for the US economy, are all weighing on the dollar this year.

US stocks get a boost from Bitcoin

US stocks have not been impacted by Middle East tensions, and volatility in the S&P 500 remained subdued. US stock indices rose more than 1% on Tuesday as small and large cap stocks rose in unison. The S&P 500 was given a boost by Bitcoin, which continues to extend gains on Wednesday and is higher by more than 6% this week. The top performers on the S&P 500 on Wednesday include stocks linked to Bitcoin, Coinbase was the top performer and Super Micro Computer was also in the top ten performers. The rise in bitcoin, and bitcoin related stocks, as the same time as the dollar index falls towards the lowest levels in more than a year, paint its own picture of America today. It also highlights a vulnerability for several blue chip stocks in the S&P 500, which move alongside bitcoin and can be volatile.

Interestingly, Tesla fell 2% on Tuesday, as enthusiasm for its robotaxi wore off slightly. However, we think this was a mere pullback after the market got too overexcited on Monday. The Magnificent 7 continue to extend gains and are in a good position to lead US stocks higher, as the market once again focuses on the AI trade.

Energy and Defense weigh on the FTSE 100

European stocks are also expected to open higher today; however, the FTSE 100 may continue to be a laggard compared to its European counterparts. The FTSE 100 is hindered by the oil majors, Shell fell 3.7% on Tuesday, and defense firms like BAE Systems also declined more than 4%. These are important sectors of the FTSE 100, which are currently out of favour. The UK index also has a lack of tech, which is holding the index back, as investors once more pour into the AI investing theme, and cool on the rearmament theme that has boosted global defense stocks in 2025. Nvidia’s share price is higher by nearly 14% in the past month.

Overall, there is not too much economic data of note released today. Headline risk is moderating, as the conflict between Iran and the US is over, and there is hope for a lasting ceasefire between Iran and Israel. As we mentioned, the oil market will only react if the flow of oil is disrupted, which it has not been so far.