WS #6452

The dominant theme remains the escalating crisis in the Strait of Hormuz, with a new attack on a bulk carrier by small craft off Iran reported by UKMTO, Al Jazeera, and multiple news outlets. This marks at least two dozen attacks since the war began, confirming the narrative is ESCALATING despite a fragile ceasefire. The US has responded to Iran's 14-point peace proposal via Pakistan, but Trump has rejected it, stating Iran has 'not yet paid a big enough price' and that further strikes are a possibility. This hardline stance, combined with the new attack, suggests de-escalation is not imminent. The OPEC+ decision to increase production by 188,000 barrels/day in June is a symbolic move that is unlikely to offset the supply disruption from the Strait of Hormuz blockade, as spare capacity is largely trapped behind the blockade. The US has become the largest oil exporter, but this is draining US inventories rapidly. Separately, Spirit Airlines has ceased operations, stranding thousands, a direct consequence of high oil prices from the Iran war. This is a negative signal for the airline industry. The US is also withdrawing 5,000 troops from Germany, widening the NATO rift. In a separate development, Ukraine struck Russian oil targets, including a key loading port and shadow fleet tankers, escalating the conflict. The market is balancing AI/tech enthusiasm against the economic drag of higher energy prices, with flows into risky assets at levels not seen since Q4 2021, per a Bluesky post. This suggests a potential risk-on sentiment that could be fragile if oil prices continue to rise.