The Overnight Report: Oil Down, Sentiment Up

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This story features IPERIONX LIMITED, and other companies.
For more info SHARE ANALYSIS: IPX
The company is included in ASX200, ASX300 and ALL-ORDS

Oil prices retreated and "hopium" around improving shipping through the Strait of Hormuz boosted US and European equities.

Nvidia's CEO Jensen Huang said sales revenue from Nvidia hardware could total US$1trn through 2027 at the GTC conference.

After a third days of losses, ASX200 futures are pointing to a positive start, ahead of the RBA rates decision at 2.30pm AEST.

The market is expecting a 25bps rate hike.

Good Morning,

Ahead of today’s RBA’s rate decision the ASX200 fell another -33 points, or -0.4% to 8,583, for a third straight negative session and a three-month low.

Materials led the falls, down -2.2%, as gold, iron ore and lithium miners were sold off.

NAB Markets Today Research extract

Financial markets have begun the week reflecting a mild positive risk sentiment tone amid hope that oil tankers will be able to traverse through the Strait of Hormuz. Having traded higher earlier in the day, the oil price is lower; equity markets are stronger; bond yields lower, while the USD is weaker.

There appears to be a high degree of hope or optimism to start the week given risks around the supply of oil remain elevated. 

Investor sentiment appears to be supported by the easing in energy prices amid reports some tankers are traversing the Strait of Hormuz. A Pakistan-flagged oil tanker and two LPG tankers headed for India cleared the Strait on the weekend, while there are reports India is in talks with Iran to ensure the passage for six tankers.

Adding support to investor sentiment is news the IEA could make more emergency reserves available.

While President Trump’s call on nations to support the safe passage of tankers through the Strait may have also supported sentiment, overnight Germany, UK, France and Japan have dismissed the request with the UK saying they will not be drawn in to a wider war.

The Bank of International Settlements warned overnight a prolonged war in the Middle East threatens a further rise in interest rates and a fall in equities and could potentially cause wider downside pressure on the global economy.

In terms of the data releases overnight, Canada’s annual inflation rate eased to a nine month low in February with headline at 1.8% (from 2.3%) and core at 2%. This is the first time since August inflation has been below the BOC’s 2% target.

The better-than-expected inflation print had limited impact on BoC rate expectations with cumulative hikes in 2026 steady at 35bps (briefly dip to 30bps immediately post the CPI release).

US industrial production came in slightly stronger than expected at 0.2% (versus consensus at 0.1%) while capacity utilisation was steady at 76.3%. Manufacturing production (which is three quarters of industrial production) was up 0.2% in February, supported by motor vehicle production. 

The Empire state manufacturing report (surveyed Mar 2-9) fell -7 points in March to -0.2 (vs consensus of 3.9). Dragging the index down was shipments (-6.9 from -1.0) while new orders improved a little (6.4 from 5.8) as did employment (5.8 from 4.0). Price paid eased from 49.1 to 36.6 –- lowest level since Jan-25.

It has been a volatile session for oil but prices are lower supported by expectations the pressure on supply will ease as some tankers are making their way through the Strait of Hormuz, while emergency supplies are about to hit the market.

WTI oil traded traded up to US$102.44 to start the week but is currently at US$93.36. There have been limited moves in precious metals with Gold trading a tight range overnight.

US stocks are posting the first positive session in five days with tech stocks leading the gain with Nvidia’s AI conference seemingly supporting investor optimism. The Vix has retreated.

After rising over the past four days, the USD is weaker. All G-10 currencies advanced against the dollar with the NZD, AUD and Swedish Krona leading the gains –- the AUD is back above 0.70 ahead of today’s RBA Monetary Policy Board meeting decision.

Bond yields are lower on the improved risk sentiment. European markets have led the rally with the lower oil price resulting in some paring of rate hike expectations -– 40bps of hikes are priced for the ECB by year end (down -4bps from Friday’s close) and -17bps for the BoE (down -1bps from Friday’s close).

AU RBA Policy Meeting: We expect the RBA to raise rates by 25bp to 4.1%, in line with consensus. Markets have 16.9bp priced for March and 69bp by year end.

Recent RBA commentary has been hawkish, and some additional tightening was already justified by a domestic backdrop which characterised already elevated inflation, robust growth and a tight labour market. 

ANZ Bank Research, Australian Morning Focus, Commodities extract

Moves in equity and fixed income markets continue to be dictated by oil, with attention fixed on the conflict in the Middle East. We expect a cautious approach from central banks initially, given uncertainties regarding the duration of the conflict and the disruption in energy markets.

We expect central banks to look through the temporary supply-driven inflation spike, provided inflation expectations remain anchored and the risk of spillover into broader inflation is limited.

Market implied inflation expectations across the US, euro area and UK all offer little cause for concern that the conflict is de-anchoring inflation expectations, while soft labour markets limit second-round inflation impacts through wage-setting behaviour.

Since the beginning of the conflict, market expectations of rate cuts from the Fed in 2026 have been pared by about -40bp.

In the UK, markets now see around 70% chance of a hike this year from the BoE, compared to two cuts priced in prior. In Europe, markets are pricing in around 40bp of ECB tightening, compared with prior expectations that it would hold through 2026.

While caution from policymakers is warranted given heightened uncertainty, we see little reason for a marked shift in guidance at this week’s policy meetings.

Crude oil intra-day volatility is high, with prices fluctuating in a US$99–US$106/bbl range. The market opened higher on Monday, reflecting concerns over escalating tensions following US strikes on Kharg Island and Iran’s retaliatory attack on the UAE’s oil export facility at Fujairah.

Later, prices retreated on hopes of reopening of the Strait of Hormuz for a few vessels. After a drone strike on Monday, Fujairah temporarily halted oil loadings. This port manages 1.8mb/d.

In Dubai, operations at the main airport were briefly suspended after an Iranian drone strike caused a fire in a fuel tank. There have been no signs of de-escalation.

The Strait remains largely closed, prompting Saudi Arabia, the UAE and Kuwait to cut oil output further, although a few vessels have started to navigate through the waterway.

President Trump has urged other nations, including France, the UK, Japan and China, to help to reopen the Strait by escorting commercial ships. However, these countries have declined, preferring to divert vessels via the Red Sea rather than risk escalating the conflict.

Spain’s Foreign Minister has called for an end to the conflict and a return to negotiations.

European natural gas prices rose sharply to EUR51.4/MWh, as continued conflict in the Middle East disrupted key energy routes and facilities. Attacks intensified on weekend and continued this week on Persian Gulf oil assets.

The closure of the Strait has taken -20% of global supply offline, intensifying concerns over energy security and driving speculation about fierce competition for LNG during the upcoming summer replenishment period.

European gas inventories depleted over winter, but a lean demand season and strong renewable energy output are providing relief to the market.

European Union nations are exploring measures to contain soaring energy prices triggered by the Middle East conflict, amid mounting concerns over the economic fallout and escalating risks to energy security, similar to 2022.

Asian gas prices moved higher to US$20/MMBtu.

China’s 30-day moving average for LNG imports was 109kt, -25% lower than a year ago, according to ship-tracking data.

Industrial metal prices were mixed, with copper eking out a slight gain while aluminium slipped.

Risk-off market sentiment outweighed China’s strong industrial production and a surprising increase in fixed asset investment.

However, trading across the LME has been abruptly halted, leaving dealers unable to place orders for aluminium and zinc The LME has acknowledged the issue and is working towards a resolution, but the uncertainty adds another layer of complexity for traders already grappling with war-driven supply risks and fluctuating prices.

Aluminium Bahrain BSC started a phased shutdown of three production lines, together accounting for -19% of its total output capacity of 1.6mt.  Meanwhile, Qatar has been compelled to curtail some aluminium output due to a natural gas shortage.

Iron ore prices retreated from US$108/t. China’s steel production fell to 160mt in Jan-Feb, falling by -3.6%y/y, which dampened market sentiment.

Gold prices fell to around US$5,009/oz last week as energy prices continued to weigh on expectations of Fed rate cuts. 

Gulf conflict rewrites energy outlook, Adam Myers, Clearbridge extract

Entering 2026, oil markets were anchored to an oversupply narrative. The Organisation for Economic Co-operation and Development (OECD) inventories had rebuilt to roughly 2.85 billion barrels, slightly above five-year averages, supporting crude oil prices in the low US$70s with downside risk into the US$50s if projected surpluses materialized.

That framework has shifted abruptly.

The military escalation between the United States, Israel and Iran has introduced tangible supply disruption risk not only to Iranian exports, but to the broader Persian Gulf energy system. Over the past week, crude oil prices have surged above US$100 per barrel, reflecting a sharp repricing of geopolitical risk.

Following failed negotiations, the United States and Israel launched coordinated attacks on Iran aimed at removing its nuclear weapons capability and ballistic missile capabilities and inciting regime change. Iran has retaliated across the Gulf, targeting civilian, military and energy targets in Israel, Bahrain, Kuwait, Qatar, the United Arab Emirates (UAE), Saudi Arabia and Jordan.

In less than a week, refineries in Bahrain, Kuwait, Qatar, Saudi Arabia and the UAE have reportedly been hit. A major refinery in Bahrain was struck by drone and missile attacks, while Qatar’s Ras Laffan —the world’s largest LNG export facility— was also hit, prompting QatarEnergy to halt production and declare force majeure.

From the outset, investors have carefully watched two critical locations:

-Kharg Island, which accounts for more than 90% of Iran’s 1.5 million to 2.0 million barrels per day of crude exports. Structural damage there would effectively remove Iranian exports from the market for an extended period, tightening balances relative to prior 2026 surplus expectations.

-The Strait of Hormuz, the primary export route for Gulf producers, accounts for roughly 30% of global oil and LNG trade each day. The effective halt in shipping through the strait has translated into immediate downstream effects: Iraq, Kuwait and others have reduced production, storage tanks have filled, and broader export flows have become constrained as the risk premium has risen, driving up energy prices as a result.

Before the conflict, oil prices were largely being driven by inventory levels, with an abundance that supported crude in the low US$70s per barrel with the possibility of additional price pressure if surpluses materialized and expanded in 2026.

However, as hostilities have escalated, crude oil prices have moved sharply. Brent and US crude benchmarks recently traded above US$100 per barrel, levels not seen in over three years.

Natural gas markets have reacted even more forcefully. Qatar supplies roughly one-fifth of global liquified natural gas (LNG), and markets were not oversupplied heading into this conflict. With Ras Laffan offline and Gulf cargoes in limbo, European gas prices have surged more than 60% and Asian prices more than 40%.

Unlike oil, LNG markets lack meaningful spare capacity. Liquefaction plants typically operate near full utilization, limiting producers’ ability to rapidly offset lost Gulf supply. The result is a tightening gas market layered on top of a repricing crude oil market.

Equally important is the structural backdrop. Spare capacity is finite, and US exploration and production (E&P) capital discipline remains intact. Producers are not signaling aggressive volume growth in response to higher prices like they have in prior cycles. That restraint amplifies macro price sensitivity to supply shocks and increases the likelihood that any disruption would translate into tighter inventories rather than rapid supply response.

In a market where geopolitical risk has repriced energy commodities, we believe quality matters.

Select US oil and gas exploration, and production companies stand out for their ability to produce free cash flow at lower crude oil prices, their conservative balance sheets, and their having the most attractive production acreage—positioning them to generate durable cash flow both at lower prices and in sustained higher-price regimes.

Many entered the conflict pricing in a mid-cycle oil environment; the recent sharp moves in crude should lead to meaningfully higher cash flows if supply disruptions persist.

For integrated energy companies, diversified portfolios and advantaged growth projects—including Guyana, LNG expansions, the Permian Basin and Alaska—could offer low-cost opportunities to not only sustain cash returns to shareholders but also grow them.

In our view, US LNG exporters may have already seen meaningful equity gains as markets have priced tighter global LNG balances. These companies may further benefit from rerouted cargo demand should Middle East volumes remain constrained.

Independent E&P companies, meanwhile, provide concentrated exposure to low-cost US shale inventory with more than a decade of drilling depth, potentially positioning them to translate stronger oil prices into cash returns without compromising balance sheet strength.

For energy stocks, the defining feature of this conflict is the direct targeting of energy infrastructure across multiple Gulf producers and across both oil and LNG value chains.

What began as concern over Iranian exports has evolved into a broader disruption of refining, LNG and maritime logistics. Oil above US$100 and sharply higher global gas prices signal that markets are now pricing in active supply strain.

For investors, the Iran conflict has temporarily rendered oversupply concerns moot. As energy market tailwinds emerge, we believe disciplined exposure to low-cost upstream operators and LNG-levered franchises offers a pragmatic way to navigate heightened geopolitical volatility.

Corporate news in Australia

-IperionX ((IPX)) lost nearly -$400m in market value after a typo in its interim accounts

-Lynas Rare Earths ((LYC)) signs $137m supply deal with US Defense Department

-Horizon Nexus acquires PKF Brisbane carve out

-Whiteoak takes majority stake in Perth industrial designer Arcadia with debt backing from Regal Funds Management ((RPL))

-Global private equity firms including Carlyle evaluating a potential deal for Up Education as Pacific Equity Partners prepares an exit

-Nick Curtis planning to sell $100m of Firmus Technologies shares ahead of the company’s IPO

-AUSTRAC using CommBank ((CBA)) data to identify AML weaknesses and tackle mortgage fraud

-VIQ Solutions enters administration placing court transcript services at risk

-APRA proposing easier lending rules to boost productivity

-Infragreen ((IFN)) shares plunge to 35c from $1 angering investors

-Westpac ((WBC)) CEO says households can absorb two expected interest rate hikes despite rising costs

-Trina Solar halts Queensland battery project but remains involved locally

-Global buyer shows interest in I MED as Permira prepares potential ASX listing

-Major self storage operators targeting Wilson Group portfolio amid sector consolidation

-Woodside Energy ((WDS)) delays low carbon ammonia startup at its $3.35bn Beaumont project due to weak customer demand and equipment delays

On the calendar today:

-AU RBA Cash Rate Decision

-EZ March ZEW

-CREDIT CORP GROUP LIMITED ((CCP)) ex-div 32.00c

-DURATEC LIMITED ((DUR)) ex-div 1.75c (100%)

-NEW HOPE CORPORATION LIMITED ((NHC)) 1H26 Earnings

-REECE LIMITED ((REH)) ex-div 5.44c (100%)

-SEEK LIMITED ((SEK)) ex-div 27.00c (100%)

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

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