Middle East oil supply speeds up recovery! Oil prices erase wartime gains, and the European Central Bank's interest rate hike expectations cool.

Against the background of the signing of a memorandum of understanding between the United States and Iran, as well as the ongoing peace negotiations, the reopening of the Strait of Hormuz has allowed for the resumption of crude oil transportation in the Middle East region. According to data from trade tracking company Kpler, since the agreement between the United States and Iran to reopen this key shipping route, more than 20 oil tankers carrying about 35 million barrels of crude oil have passed through the Strait of Hormuz. As oil prices fell significantly, some economists have begun to lower their expectations for further interest rate hikes by the European Central Bank. Oxford Economics Institute stated on Thursday that after implementing the first rate hike since 2023 earlier this month, they no longer expect the European Central Bank to take further action. The Institute pointed out that the sudden drop in energy prices following the agreement between Iran and the United States has "shortened the initial surge in inflation." German chief economist Oliver Lorko said, "In the context of weak demand and a cooling labor market, this also reduces the likelihood of a significant second-round effect of inflation. Therefore, we believe that the current balance between growth and inflation at the European Central Bank is more inclined towards adopting a hawkish pause strategy." Earlier this week, Capital Economics also adjusted its forecast for the European Central Bank to "end after one rate hike." Other institutions including Nomura Securities and Royal Bank of Canada Capital Markets have also lowered their expectations for the number of rate hikes in their respective forecasts. However, the market is currently fully pricing in the expectation of a 25 basis point rate hike by the European Central Bank this year. European Central Bank officials remain cautious. Isabel Schnabel, a member of the European Central Bank's Executive Board, said on Wednesday that further action is needed from the current perspective to bring the current inflation rate of 3.2% back to the target level of 2% in the medium term. Although Schnabel welcomed progress in the situation in the Middle East, she pointed out that it may still take a long time for oil and natural gas supply to return to pre-war levels. She said, "We are particularly concerned about energy prices to be delivered in the coming years, and these prices are still high." She mentioned several reasons including damaged energy infrastructure, "While the current short-term situation is better than we previously expected, a ceasefire is not a reason for monetary policy makers to relax their vigilance." Philip Lane, Chief Economist of the European Central Bank, said in a speech on Tuesday that inflation will remain above the 2% target for "quite some time." European Central Bank Vice President Boris Vujcic said overall inflation and core price pressures will remain at "higher, longer" levels. Ante Zgeman, a member of the European Central Bank's Governing Council and Governor of the Croatian National Bank, emphasized on Tuesday that the European Central Bank's primary task is to control inflation, and with oil prices falling, that task is becoming slightly easier. In his first public speech since becoming Governor of the Croatian National Bank earlier this month, Zgeman said that the European Central Bank has shown readiness to act by raising borrowing costs. He added, "We must focus on price stability. Geopolitical developments related to the opening of the Strait of Hormuz have led to a fall in oil prices. This will undoubtedly have a positive impact on inflation." In contrast, the position of the European Central Bank President Lagarde seems slightly more "dovish." Earlier this week, Lagarde said that the European Central Bank is prepared to adjust its policy stance as the situation evolves, but she has not seen any evidence yet to suggest the need for "stronger policy measures." Barclays Bank Chief Economist Christian Keller stated on Thursday that in an environment of improving economic prospects, the European Central Bank may be concerned about the transmission effects of previous spikes in energy costs to the overall economy and inflation. He said, "There are indeed reasons to hike rates again, but the likelihood of stopping rate hikes at the 2.5% level after that is now very, very high." This view is consistent with the views of analysts George Morlan and Peter Schafrik from Royal Bank of Canada Capital Markets. They expect the European Central Bank to have its last rate hike in September. Nomura Securities still expects the European Central Bank to have two more rate hikes - in September and December, but has canceled its previous forecast of a third rate hike in March 2027 by the European Central Bank.