March 5 (Reuters) – The U.S. Treasury Department could announce measures as soon as Thursday to address rising energy prices, potentially including action in the oil futures market, a senior White House official said.
Global oil prices have jumped since the war with Iran started on Saturday, as the spreading conflict disrupts Middle East supplies. [O/R]
JOHN KILDUFF, PARTNER AT AGAIN CAPITAL
“Intervention by Treasury in this market would be unprecedented. The analogy to utilizing treasury market futures during the GFC is not apples-to-apples. For starters, the U.S. Treasury has a natural position in the bond market. In this case, I assume the goal is to lower futures prices, which, theoretically would involve selling futures on the open market – a lot of them to effect prices!”
“Going naked short in this market, at this time, requires a lot of resources to support the position (capitalize margin calls), in the event of a further, acute supply disruption event. The Treasury does have unlimited financial resources, however.”
JOHN PAISIE, PRESIDENT OF STRATAS ADVISORS
“It could dampen speculation with traders knowing that the U.S. government is taking the opposite side – which should moderate the spike in oil prices – but it does not solve the disruption to physical supply, which is significant with the closure of the Strait of Hormuz, and there is no spare capacity outside of the Gulf.
“Ultimately, if substantial oil volumes are kept off the market, financial manipulation is not going to work. Traders will continue betting on the oil price going higher – because the price should be higher.”
PHIL FLYNN, SENIOR ANALYST WITH PRICE FUTURES GROUP
“This is a very novel, think-outside-the-box move. Instead of using physical barrels to try to ease market concerns you can use futures to sell the front end of the curve and buy the back end.
“The Treasury’s traditional role focuses on fiscal policy, debt management, and occasional interventions in currency markets through mechanisms like the Exchange Stabilization Fund, but not in commodities like oil.”
TONY SYCAMORE, IG MARKET ANALYST
“If they go ahead and try to influence futures contracts themselves (deliverable futures contracts at that), it might create a short-term pause or spook some speculative longs, but I’d be surprised if it moves the needle meaningfully beyond a day or two.
“The oil market is deep, global, and driven by real supply/demand fundamentals – especially with tanker traffic already choked in the Strait and trying to avoid the genuine threat of Iranian drone and other strikes. A bit of Treasury jawboning or symbolic action is unlikely to unlock or change that.”
ED MEIR, MAREX ANALYST
“I’m not sure what they have in mind, but if they intend to sell futures to bring prices lower, this is a big gamble and will also be an unprecedented interference in the crude oil markets.
“The question that comes immediately to mind is what happens if prices continue to move higher and go against a potential Treasury short position? Will they use the SPR oil to deliver against their short or just continue to post margin and ride out their position?”
(Reporting by Pablo Sinha, Anushree Mukherjee and Ashitha Shivaprasad in Bengaluru; Editing by Nia Williams and Sumana Nandy)
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