SUPPORTED BY

Hi Reader,

Happy Friday! You could charge good money for a cloud right now. ☀️

In-depth: How did the oil market defy the Iran War and forecasts of $200 a barrel?
Newsbites: Iran ~~cease~~fire, the Bank of England's big fear, and a South Korean bear.
PensionCraft News: Could China pop the AI bubble? Can asset classes play football? And how to benefit from financial coaching?

IN-DEPTH

The World’s Most Underwhelming Oil Shock

There’s a sort of unspoken hierarchy inside every investment bank.

The fixed income desk looks down on the primitive forecasts of the equity analysts. The equity desk laughs at the coin-flipping of the FX team. The FX guys are quietly grateful to the commodities desk for making them look almost competent. And in the corner of the commodities desk sits the oil analyst, whom everyone pities as he adjusts his price target for the fifth time that morning.

I’m only joking. The hierarchy is very much spoken about. And this year has shown us exactly why.

When Iran shut the Strait of Hormuz in March, the best oil forecasters in the business prophesied doom unless tanker traffic resumed quickly. It was the largest supply disruption in the history of the oil market, with a fifth of the world's oil suddenly trapped behind a single chokepoint. Analysts weren’t shy about calling for $150 a barrel, or even $200.

And prices did spike. Brent climbed from $63 at the start of the year to a peak of $126 in late April, before defying the gloom to slide all the way back to $70. The nightmare scenario, the one analysts had spent years war-gaming, produced a smaller spike than Russia's invasion of Ukraine in 2022.

Even the restrained forecasters at the IMF missed the mark.

“The oil futures curve implies an average petroleum spot price index of $78 per barrel for 2026, compared with the $82 per barrel assumed under the reference forecast in the April 2026 World Economic Outlook (WEO) and $100 per barrel assumed under the April adverse scenario.” — IMF, World Economic Outlook, July 2026

So how did we avoid the economic apocalypse?

Death by a thousand cushions

There are several factors at play, and they are all at least partly true.

Firstly, the market entered 2026 swimming in a surplus of two million barrels per day, on top of onshore tanks, floating storage and ample strategic reserves. Drawing down these stockpiles helped mute the price impact, with the ceasefire allowing the tanks to be refilled slightly last month.

In addition, America was able to ship out its crude quicker than expected. US oil exports climbed by 3.8 million barrels a day, which seemed a stretch when the shooting started. Add in the temporary lifting of sanctions on Russian and, uh, Iranian oil, and surprise barrels covered a significant chunk of the stranded supply.

But that did not stop some massive moves in refined products. While the jump in crude was relatively contained, diesel, petrol and jet fuel all rocketed higher. The damage was worst in regions that rely on Iranian exports, with Asian refined products surging as much as 120%. In many ways, the pain migrated downstream.

Unsurprisingly, this led to demand destruction. Consumers and industry cut back by around 6 million barrels a day according to the IMF, far exceeding the 2.5 million barrel-a-day slump during the financial crisis.

As an additional bonus, the Trump administration managed to successfully buy itself time by talking down the oil price when it rose beyond comfort. I’m surprised the game worked, transparent as it was. Resume the bombing on a Friday after market close, only to announce phantom peace talks on a Monday morning. Brilliant! Apparently the market likes to eat stale TACOs.

But some analysts believe an even greater force was at work. China.

“Chinese crude oil imports fell by 40-45% — roughly 5 million barrels a day — from pre-war levels to the average levels we saw through June. That is gargantuan. That is a larger shift than the entirety of the world’s SPR (Strategic Petroleum Reserves) releases combined.” — Rory Johnston, oil analyst

Morgan Stanley calls Beijing’s response the single most important reason oil didn’t surge higher. And SocGen ranks it as the second-largest offset to the shock, behind only Saudi’s pipeline rerouting, and ahead of both the shale surge and coordinated reserve releases.

Perhaps Beijing saw it coming. In the first two months of 2026, Chinese oil imports jumped 16%, with the bulk flowing into reserves rather than consumption. So when Brent surged in March, domestic Chinese oil prices were far less volatile than the international market.

It also helps that China’s demand is more elastic than most. Electric-vehicle adoption is high, the economy is rapidly electrifying, and coal and renewables act as an energy backstop when oil gets expensive. This whole episode has been a live test of China's energy-security model, and it appears to have passed.

But this is demand deferred, not destroyed. As those reserves are rebuilt, expect some upward pressure on prices in the months and years ahead.

With the shooting in the Strait starting up again, I’ll refer you back to what I wrote in early March:

“While the risk is clearly to the upside, the oil market has weathered significant shocks before. Energy supply often proves more adaptable than bears expect.”

How’s that for forecasting? Hedged, cowardly, and unfalsifiable… like all good forecasts. I didn’t work in fixed income for nothing.

I opened my Stocks & Shares ISA with Lightyear because I've always believed that in long-term investing, the one thing you can actually control is costs. And Lightyear is currently one of the lowest-cost brokers in the UK.

Their Stocks and Shares ISA and General Investment Account are commission-free, and the FX fee has been reduced to 0.1% (fund manager fees apply).

They offer a growing range of fractional, GBP-denominated ETFs and thousands of US and European stocks. You can check the full range here: lightyear.com/pensioncraft-funds

If you'd like to try Lightyear, use the code PENSIONCRAFT to receive between £10 and £100 in a fractional share or ETF. See full T&Cs at lightyear.com/pensioncraft. Investing involves risk. ISA rules and promotional terms apply.

NEWSBITEs

The Iran ceasefire collapsed and oil surged. After Iranian attacks on three commercial vessels off the coast of Oman, the US struck more than 80 targets and Trump declared the truce "over". Brent briefly topped $80 a barrel—up 8.7% intraday—before settling near $76, still well below April's $126 peak. Washington also reimposed its embargo on Iranian oil sales. Time to dust off our Strait of Hormuz maps again.

The Bank of England named AI a threat to financial stability. Its July report flagged AI firms' accelerating debt issuance, record equity leverage and frontier models' growing cyber capabilities. However, the Bank noted stretched valuations beyond the obvious suspects: strip out the top 30 AI stocks and the S&P 500 is still at its most expensive since 2007. UK banks, it judged, remain resilient. Surprise, surprise.

South Korea's Kospi tumbled into a bear market. The index fell 5.35% on Wednesday to close more than 20% below June's record high, as Samsung and SK Hynix sold off on doubts over memory-chip contracts and AI capex. This is despite Samsung guiding a 19-fold profit jump the day before. Still, the Kospi remains 2026's best-performing major index, up over 70%. Time for some Seoul-searching?

SpaceX joined the Nasdaq-100 just 15 trading days after listing. New fast-track rules ushered in the record $75bn IPO at a weighting of under 1%, obliging $800bn of index funds to buy roughly $4bn of stock already down more than 30% from its post-IPO peak. The S&P 500, which fast-tracks no one and requires profits, remains off-limits.