In charts: our latest scenarios for energy prices, central banks and markets
The desk expects energy prices to respond dramatically to geopolitical developments, particularly in the Middle East, which will have cascading effects across financial markets. According to insights from ING, scenarios ranging from a swift resolution to the ongoing conflicts to a severe escalation could see oil and natural gas prices fluctuate significantly, impacting inflation and central bank monetary policies. This is particularly crucial as these trends influence market sentiment, especially in FX, where currency pairs correlate with commodity prices. Market participants should brace for volatility, particularly in commodities, as developments unfold in the coming weeks, warranting close monitoring source.
What the desk is arguing
The desk frames the outlook for energy prices as contingent on escalating geopolitical tensions in the Middle East and the potential for a quick resolution. As detailed in the note from ING, these scenarios highlight the ripple effects on financial markets, including potential shifts in inflation rates and subsequent central bank policies.
ING's analysis provides a clear depiction of how these scenarios could play out, estimating fluctuations in oil and natural gas prices that could reverberate throughout the economy, thereby affecting central bank strategies. This notion is particularly pertinent, as a sharper increase in energy prices may challenge current inflation targets set by central banks, leading to a more hawkish stance.
Where it sits in our coverage
Our consensus target for energy-linked currencies places EUR/USD at a range of 1.04 - 1.12, with several firms providing insights that align closely with this spread. The following firms have set their December 2026 targets: - jpmorgan: 1.10 - bofa: 1.04
The current view from the desk aligns closely with the upper end of this range, emphasizing the economic impact of fluctuating energy prices while reflecting the consensus expectations of market participants navigating through potential shocks.
How other firms see it
The jpmorgan and bofa analyses suggest a shared understanding of the risks associated with energy prices but highlight different expectations for energy market developments. While jpmorgan seems to align with a sustained higher energy price outlook, bofa remains more conservative, reflecting a divergence in market sentiment.
Observing the direct correlation of these developments, it is essential to monitor the EUR/USD trajectory as it continues to respond to changes in both energy prices and central bank communications. A close watch on the Bank of England's policy adjustments will also be vital, as shifts in their stance could create broader impacts in currency markets.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Energy prices are highly sensitive to geopolitical developments in the Middle East.
- 02A quick resolution or severe escalation could create significant volatility in oil and natural gas prices.
- 03The outlook for inflation and central bank policy is intricately linked to energy price fluctuations.
- 04Current consensus targets suggest a range between 1.04 and 1.12 for energy-related currencies.
Market implications
Traders should observe the EUR/USD closely as reactions to geopolitical developments may create opportunities for volatility in this pair. Additionally, staying alert to any shifts in central bank policies will be critical, particularly from major central banks, which are already navigating a precarious inflation landscape.
Risks to this view
A significant de-escalation in Middle Eastern conflicts or a substantial increase in energy production could lead to lower energy prices, challenging the desk's more hawkish stance. Such a scenario would also result in downward pressure on inflation expectations, prompting central banks to reconsider their current policy paths.
Articles In charts: our latest scenarios for energy prices, central banks and markets 10:52 Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Here's what happens to oil and natural gas prices if there's a quick deal or a severe re-escalation in the Middle East war – and how it would play out across financial markets Carsten Brzeski , Warren Patterson and James Smith Three scenarios for energy markets Source: ING "> Source: ING Three scenarios for inflation Source: ING "> Source: ING Three scenarios for central banks Source: ING "> Source: ING Three scenarios for markets Scenarios Scenario analysis Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Carsten Brzeski Global Head of Macro Carsten Brzeski is the Global Head of Macro for ING Research.
Previously, he worked at ABN Amro, the Dutch Ministry of Finance and the European Commission. He is a 2019 JFK Memorial Policy Fellow… Warren Patterson Head of Commodities Strategy Warren Patterson is Head of Commodities strategy based in Singapore. He joined the bank in April 2016 and covers the entire commodities complex.
Previously, he worked at a commodities trade house… James Smith Developed Markets Economist, UK James is a developed market economist, responsible for ING's view on the UK economy and Bank of England. He graduated from the University of Bath with a degree in economics and joined ING in 2015.
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