- The escalation in the Middle East has not led to a rise in Brent prices.
- The US dollar has been unable to capitalise on the favourable oil situation.
The US dollar has recorded modest gains amid the recent escalation of the conflict in the Middle East, while oil prices have fallen. This is typical behaviour during a relatively smooth reassessment of monetary policy prospects, rather than a nervous reaction to geopolitical events. A barrel of Brent crude is trading around $91, close to the lower end of the range over the past three months, despite clear signs of global stockpile depletion.
According to S&P Global Energy research, 500 million barrels are needed to replenish oil stocks outside the Persian Gulf. In other words, to return stocks to February levels by the end of the year, a surplus of 1 million barrels per day is required.
However, the market is paying more attention to the balance than to stocks. Brent is trading 30% above pre-conflict levels in the Middle East. At the same time, high prices are reducing global demand. China is a clear example, with oil imports falling to 7.8 million bpd in May, the lowest level in eight years. By comparison, the average for 2025 was almost 4 million bpd higher.
Coupled with record US energy exports, Saudi Arabia’s price cuts for its customers, and the resumption of supplies from Kuwait to Asia, these developments point to the oil market having adapted in recent weeks. Without this, oil would have been set to rise amid a 9.12-million-barrel decline in commercial stocks over the week and eight consecutive weeks of declines.
Without oil support, the US dollar is currently out of its depth. Neither the high demand for safe-haven assets nor the decline in global risk appetite—evident in the sell-off in equities and gold—is supporting the greenback. Fears that inflation will surge to three-year highs in May are fuelling rumours of a Fed rate hike and triggering sell-offs in tech stocks and the S&P 500.
Could inflation figures help the US dollar? Only if there are clear signs of accelerating price growth that even Warsh cannot ignore.
