Replenishing crude, fuel supplies could take two years, Saudi Aramco CEO says
The ongoing constraints in crude oil and refined fuel supplies, as highlighted by Saudi Aramco's CEO, signal a deeper and more prolonged energy inflation risk, exerting upward pressure on the USD. With global stockpile replenishment projected to take up to two years, market dynamics may shift as traders recalibrate their expectations on central bank policies, especially concerning EM currencies. This backdrop underscores potential carry trade opportunities in the USD as inflation pressures persist across economies.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The current market sentiment reflects broader concerns about energy inflation, likely bolstering the USD's attractiveness compared to other currencies in the short to medium term.
How firms align
JPMorgan supports the view that the extended energy supply tightness could enhance USD strength, with a target of 1.10 for Q1 2026. In contrast, BofA's position suggests more skepticism about the sustainability of these trends, setting their target at 1.04 — a perspective that diverges from the broader consensus that anticipates persistent inflation effects on the dollar.
What the data shows
Recent publications indicate an upward revision in inflation forecasts, likely influenced by ongoing supply constraints in energy markets. Additionally, insights regarding geopolitical tensions affecting crude supplies further bolster the case for a stronger USD as seen in our recent report at /research/inflation-impact.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Energy supply constraints point to sustained inflation, potentially strengthening the USD.
- 02Traders should consider leveraging USD carry trades amid inflationary trends.
- 03Monitor levels around 1.075 for EUR/USD as traders adjust to ongoing supply shocks.
Market implications
In the coming weeks, focus on the upcoming FOMC meeting and associated data releases that could further signal the Fed's positioning around interest rates. The consensus number of 1.075 for EUR/USD also remains a critical pivot to watch as positioning develops.
Risks to this view
A swift resolution to supply chain issues or significant changes in geopolitical tensions could alter the current inflation narrative, potentially leading to a USD reversal. Should EM central banks adopt aggressive easing measures contrary to current market expectations, this could undermine the bullish outlook for the USD.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.65
Sources & References
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