The BJP made historic gains in West Bengal and won a third term in Assam, while results also showed changes in Tamil Nadu and Kerala. Elections were held in West Bengal, Tamil Nadu, Kerala, Assam, and Puducherry.

State budgets have seen higher welfare and populist spending in recent years. This has pushed deficit ratios above the 3% of GDP threshold in FY26 and likely FY27, alongside wider State Development Loan spreads.

Election Pledges And Fiscal Pressure

Election pledges are expected to add further pressure to state finances this year. This could affect how markets view fiscal risks.

Areas linked to public spending, such as railways, infrastructure, defence, industrial electrification, ports, and manufacturing, are among the sectors in focus. The analysis also referenced risks to Indian assets from Brent, El Nino, and bond yields.

We see the ruling party’s expanded political influence, which was clear after its gains in state elections back in 2025, as a sign of continued policy stability. This long-term trend supports a bullish outlook for specific sectors tied to government spending. For derivative traders, this reinforces the case for longer-dated call options on indices tracking infrastructure and manufacturing.

Sectors like railways, infrastructure, and defense are still positioned to benefit from consistent government focus. The Union Budget for FY27 continued this pattern, allocating a record ₹3 trillion for railways, which builds on the capital expenditure push we have seen for several years. Traders should consider bullish positions on futures contracts for major engineering and capital goods companies that are primary beneficiaries.

State Deficits And Market Spillovers

The earlier warnings about rising state-level deficits from populist spending have materialized, which creates a distinct risk. Recent Reserve Bank of India data confirms that the combined state deficit for FY26 reached 3.4% of GSDP, exceeding fiscal targets. This pressure suggests potential volatility in state-backed entities and their debt instruments.

We have seen this play out in the bond market, as the spread between 10-year State Development Loans and central government securities has widened by another 15 basis points since late 2025. This confirms the market is pricing in higher risk for state-level debt. Interest rate futures could be used to hedge against or speculate on further increases in these yields.

We must also hedge against the external risks that were identified previously. With Brent crude currently hovering around $90 per barrel, the pressure on India’s import bill and inflation is a significant concern. This makes buying protective put options on the Indian rupee or on oil-sensitive sectors like paint and aviation a prudent strategy.

The persistence of high global bond yields, with the US 10-year treasury holding above 4.5%, continues to make foreign capital inflows more selective. This environment adds a layer of potential volatility to the broader market. Hedging broad market exposure with NIFTY 50 index puts could be a wise move in the coming weeks.

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USD/CAD traded in a tight range on Tuesday as a small pullback in Oil prices and a firmer US Dollar weighed on the Canadian Dollar. The pair was near 1.3619 after an intraday low of 1.3604.

The US Dollar Index was around 98.45 and little changed on the day, with Middle East tensions supporting the currency. USD/CAD has been under downside pressure since early April, while near-term price action has turned choppy.

Key Data And Technical Levels

Markets are waiting for US and Canadian employment data due on Friday, which may shift interest rate expectations. The pair remains below the 20-day Simple Moving Average and the Bollinger Bands mid-line at 1.3697.

The RSI is near 40 and the MACD is negative, with red histogram bars fading. Resistance sits at 1.3697, then 1.3852, with another barrier near 1.4000.

Support lies at the lower Bollinger Band at 1.3543, then 1.3400. Drivers of the Canadian Dollar include Bank of Canada rates, Oil prices, inflation, economic data, and the trade balance.

The Bank of Canada targets inflation at 1–3% and can also use quantitative easing or tightening. Oil is Canada’s biggest export, and higher or lower prices can affect the currency and trade balance.

Policy Divergence And Macro Drivers

Looking back to last year, we saw a bearish outlook for USD/CAD as long as the pair stayed below the 1.3700 level. At that time in 2025, momentum was weakening, and traders were waiting for employment data to make a move. The situation today has changed significantly, with that old resistance level now being tested as new support.

The primary driver has been the divergence between the Bank of Canada and the US Federal Reserve. Recent statements from the Fed suggest they will hold interest rates steady through the summer, while the Bank of Canada has signaled a potential rate cut in June after Canada’s GDP grew by only 0.2% in the first quarter of 2026. This policy difference is putting upward pressure on the USD/CAD exchange rate.

Adding to this pressure, WTI crude oil prices have softened from over $85 a barrel in March to around $78 this past week amid global demand concerns. Furthermore, last Friday’s employment data showed Canada added a meager 5,000 jobs, far below expectations, while the U.S. Non-Farm Payrolls report came in strong at 240,000. These figures reinforce the economic split between the two nations.

Given this context, derivative traders should consider strategies that benefit from a rising USD/CAD. Buying call options with a strike price around 1.3900 for July expiration offers a way to capture potential upside with defined risk. Bull call spreads could also be used to lower the upfront cost of positioning for a gradual grind higher.

The key level to watch is the old 1.3700 resistance area, which we now view as critical support. A sustained break below this level would challenge the current bullish outlook and could be a signal to reduce long exposure. For now, we see dips toward this level as potential buying opportunities.

In the coming weeks, all eyes will be on the upcoming inflation reports from both countries. A hot U.S. CPI print combined with a soft Canadian reading would likely provide the next catalyst to push USD/CAD towards the 1.4000 mark. This is the main event we are positioning for.

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Asian currencies weakened as oil prices rose on renewed Middle East tensions and concerns about the Strait of Hormuz. Reports cited Iranian missile and drone attacks on the UAE and incidents near the strait, raising concerns about the ceasefire’s stability.

Higher oil prices can raise energy import costs and increase inflation risks across the region. The move also coincided with a firmer US dollar, higher US Treasury yields, and weaker risk appetite, which can weigh on Asian exchange rates.

Oil Shock And Asian Fx Pressure

The Philippine peso (PHP), Indian rupee (INR), and Thai baht (THB) were described as more exposed to the oil move. The Singapore dollar (SGD) was described as more resilient than peers, though still exposed to renewed oil and US dollar pressure.

The note said a late April to early May improvement in Asian FX proved short-lived. The article was produced using an AI tool and reviewed by an editor.

The jump in oil prices is the most important factor for us right now, with Brent crude pushing past $98 a barrel this week. This is a direct result of renewed conflicts reported around the Strait of Hormuz, a critical channel for global energy supplies. The market is nervous, and this sudden shock is steering our immediate trading focus.

This situation creates a familiar but negative environment for Asian economies that rely heavily on energy imports. We are seeing a stronger US dollar, weaker risk appetite, and rising concerns about inflation in the region. For instance, with India’s last inflation print at 4.8%, this energy price spike could easily push it back toward the 6% mark, forcing the central bank’s hand.

Trade Focus And Risk Positioning

Given these headwinds, we should focus on currencies most sensitive to oil prices, like the Philippine Peso, Indian Rupee, and Thai Baht. The USD/PHP pair is already testing the 59.00 level, and strategies that profit from further weakness, such as buying call options on USD/INR, look attractive. These currencies will likely remain under pressure as long as oil stays elevated.

In contrast, the Singapore Dollar is proving more resilient, with USD/SGD holding relatively steady around 1.355. Its strong fundamentals offer a potential hedge against broader regional weakness. This relative strength makes it a less appealing short but a useful benchmark for the region’s performance.

This sharp move reminds us of the volatility we saw in late 2024, suggesting that implied volatility in FX options will likely rise in the coming weeks. We should therefore pay close attention to the pricing of options, as positioning for sustained currency swings could be profitable. This is not a time for complacency, as the market dynamics have clearly shifted.

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The Euro rose against the US Dollar on Tuesday as a mild drop in Oil prices pushed US Treasury yields lower. EUR/USD traded near 1.1701 after an intraday low of 1.1676.

Gains in EUR/USD were limited as risk mood stayed weak after renewed fighting in the Middle East. The US Dollar Index was near 98.40, down about 0.07% on the day.

Middle East Tensions And Market Reaction

Fresh attacks in the Gulf on Monday raised doubts about how long the ceasefire may last. US Defence Secretary Pete Hegseth said the ceasefire with Iran is “not over”, and said President Donald Trump will decide if recent tensions break it.

This reduced fears of an immediate escalation and helped Oil prices fall, with WTI down around 3%. Oil prices still stayed high overall, keeping inflation risks in view and affecting rate outlooks.

Markets priced in at least two European Central Bank rate rises this year, while doubts remained due to the Eurozone’s exposure to energy shocks. ECB member François Villeroy de Galhau said he does not yet see “sufficient signs for a rate hike”, but said rates may rise if there are second-round effects.

In the US, FedWatch showed the Federal Reserve likely to hold rates soon, while the chance of a December rate rise rose to around 27% from near zero a week ago. JOLTS openings fell to 6.866 million in March from 6.922 million, and ISM Services PMI eased to 53.6 in April from 54.

Rate Differentials And The Stronger Dollar

We see the EUR/USD is trading around 1.0850, a stark difference from the 1.1700 levels we recall from the geopolitical flare-ups of 2025. That period’s temporary oil price pullback offered a false sense of relief. Today, the Greenback’s strength is more persistent due to a clearer interest rate advantage.

Oil prices are now consistently holding around $85 per barrel for WTI crude, which is keeping inflation sticky on both sides of the Atlantic. In the Eurozone, the latest Harmonised Index of Consumer Prices (HICP) data for April showed inflation at a stubborn 2.6%, still above the ECB’s target. This reinforces the “higher for longer” rate environment that has suppressed the euro’s upside.

The European Central Bank is consequently expected to keep its main deposit rate firm at 3.75% through the summer, a scenario we see reflected in EURIBOR futures contracts. This contrasts with the situation in 2025, when the market was uncertainly pricing in two hikes. Now, the focus for options traders is on the timing of any potential rate cut, not a hike.

In the US, the narrative is similar but more pronounced, with the latest CPI reading showing inflation at 3.1%. The Federal Reserve is holding its ground with a target rate of 4.50%, creating a significant yield advantage that continues to attract capital to the dollar. This rate differential is the primary headwind for any significant EUR/USD rally.

Given this backdrop, we should anticipate continued range-bound trading with elevated volatility, making options strategies attractive. The VSTOXX, a measure of Eurozone equity volatility, has recently climbed to 18, signaling increased market nervousness about upcoming inflation data. Traders should consider buying straddles or strangles on the EUR/USD to profit from sharp moves in either direction following the release of key inflation and employment figures in the weeks ahead.

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US equities rose on Tuesday as crude prices fell and first-quarter earnings mostly beat forecasts. The DJIA was up about 0.30% above 49,000, the S&P 500 gained nearly 0.70%, and the Nasdaq added about 1% after an intraday high above 25K.

WTI crude futures dropped 3% to above $102 a barrel and Brent fell 2% to above $111. Iran has reportedly attacked vessels nine times since the ceasefire was announced, while 22.5K mariners were said to be unable to transit the Strait of Hormuz, with hundreds of ships waiting for US naval cover.

Key Earnings Highlights

Pfizer shares rose about 2% after Q1 earnings and revenue beat consensus and it reaffirmed its 2026 outlook. Anheuser-Busch InBev jumped roughly 8% after its first quarterly beer volume growth in three years and results beat estimates.

Intel surged around 10% after a report of early-stage talks with Apple about US-based chip manufacturing. Micron gained another 5% amid higher analyst price targets linked to AI-related high-bandwidth memory demand.

Palantir fell roughly 3% despite record Q1 revenue, an EPS beat, raised guidance, and 85% year-on-year sales growth versus about 75% expected. The stock remained down close to 20% year-to-date.

The ISM Services PMI was 53.6 versus 53.7 expected, and the S&P Global Composite PMI was 51.7 versus 52. JOLTS openings were 6.87 million and the hiring rate rose to 3.5%, ahead of Friday’s NFP forecast of 60K versus 178K prior.

Trade Ideas And Risk Views

The market’s calm view on the Strait of Hormuz is a clear mispricing of risk. We see this as an opportunity to buy cheap, out-of-the-money call options on crude futures or energy sector ETFs. History from the conflicts of the early 2020s shows how quickly energy markets can reprice when a critical chokepoint that handles over 20% of global oil is threatened.

The negative reaction to Palantir’s strong report is a signal that valuation is starting to matter again, especially in the AI sector. We should consider selling call spreads on high-multiple tech names to capitalize on this sentiment and hedge against further multiple compression. With the Nasdaq 100’s forward P/E ratio pushing above 30, we are seeing dynamics reminiscent of the valuation pullback in late 2025.

All eyes are on Friday’s jobs report, where the low 60,000 consensus creates a major binary event for the market. A straddle or strangle on a broad market index like the S&P 500 allows us to profit from a significant move in either direction, whether it’s a surprisingly strong number or a negative print that ignites recession fears. The CBOE Volatility Index (VIX) is currently trading below 18, which seems too complacent given the potential for a multi-standard deviation surprise similar to what we saw in mid-2025.

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New Zealand’s Global Dairy Trade GDT Price Index rose by 1.5% in the latest event. This compares with a fall of 2.7% in the previous result.

The update shows a change in direction from a decline to an increase. It reports the movement in the overall GDT Price Index between consecutive auctions.

Implications For New Zealand Dollar

We’ve seen a surprise turn in the Global Dairy Trade index, posting a 1.5% gain against expectations. This breaks the negative trend from the last reading of -2.7% and suggests a potential bottoming in dairy prices. For us, this is a clear bullish signal for the New Zealand dollar, as dairy remains a cornerstone of the country’s exports.

The immediate play is to look at buying short-dated NZD/USD call options to capture any follow-through momentum. Considering the Reserve Bank of New Zealand maintained its hawkish stance in its April 2026 meeting, this strong export data could amplify calls for rates to stay higher for longer. This reinforces the fundamental case for NZD strength against currencies with more dovish central banks.

We must temper this optimism with the shaky demand picture from China, whose April PMI figures recently showed a worrying contraction below 50. Historically, we’ve seen a strong positive correlation between Chinese import demand and GDT results, so a slowdown there remains the key risk to this rally. Last year, similar GDT strength in mid-2025 was quickly undone by weak industrial data out of Beijing, a pattern we need to watch for.

The supply side may be supporting these prices, as Fonterra’s own production forecasts from late 2025 were cautious and pointed to tighter milk collections this season. This contrasts with the supply glut we saw back in early 2025, which kept a lid on any price rallies for several months. A combination of tighter supply and a potential demand floor could increase the implied volatility on longer-dated NZD options.

A more nuanced trade could be to position for NZD strength against the Australian dollar, given that recent iron ore prices have fallen over 8% in the last month. We can structure this using futures spreads or by selling AUD/NZD, capitalizing on the diverging outlooks for New Zealand’s soft commodities versus Australia’s hard commodities. Selling out-of-the-money puts on NZD/USD could also be attractive to collect premium, assuming this GDT result establishes a new floor for the currency pair.

Risk Factors And Trade Structures

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AUD/USD is rising near 0.7190 after the Reserve Bank of Australia (RBA) raised rates. Attention is now on the next steps for policy.

The RBA lifted the cash rate by 25 basis points to 4.35%. This was its third straight increase this year, backed by an 8–1 vote.

Rba Guidance And Inflation Risks

RBA guidance was more balanced than the rate move. It said inflation may stay above target due to high energy prices and geopolitical tensions, and future decisions will be data dependent.

In the US, JOLTS job openings dipped to 6.866 million from 6.922 million. This points to cooler labour demand, while conditions remain tight.

The ISM Services PMI eased to 53.6 from 54.0 and stayed in expansion. Business Activity and New Orders held up, supporting expectations that the Fed can keep policy restrictive.

On the four-hour chart, AUD/USD trades at 0.7194 above the 20-period SMA at 0.7185 and the 100-period SMA at 0.7157. The RSI (14) is near 56, and resistance is at 0.7195.

Key Levels And Near Term Setup

Support sits at 0.7185, then 0.7174 and 0.7167. Further support is at 0.7157 and 0.7152.

We recall that in late 2025, the Reserve Bank of Australia raised its cash rate to 4.35%, creating a surge in the AUD/USD toward 0.7190. The central bank signaled a data-dependent pause, while US data at the time showed a resilient economy, keeping the Federal Reserve on a restrictive path. This created a complex trading environment based on diverging policy hints.

Today, the situation has evolved, but the underlying theme is similar, with both central banks at a crucial turning point. Australian quarterly inflation recently surprised to the upside, printing at 3.8% year-over-year, which has renewed talk of a potential RBA rate hike after a long hold. This has put upward pressure on the Aussie dollar, which currently trades around 0.6650.

On the US side, after a series of rate cuts through early this year, the latest core PCE inflation data showed a slight re-acceleration to 2.9%. This has forced the market to scale back expectations for further Fed easing. The US Dollar has found a floor as traders weigh the possibility that the Fed’s next move may be delayed.

Given this renewed uncertainty, purchasing AUD/USD call options with a two-month expiry seems prudent. This strategy allows us to capitalize on potential upside if the RBA turns more hawkish than the Fed, while capping our maximum loss at the premium paid. It is a defined-risk way to position for a potential shift in central bank policy dominance.

Alternatively, with both the RBA and Fed now facing renewed inflation pressures, implied volatility in the pair is likely to rise ahead of their next meetings. We could consider buying a strangle, using out-of-the-money calls and puts, to profit from a significant price move in either direction. This would be a bet on a decisive policy statement rather than a specific directional outcome.

Looking back at the months that followed that push toward 0.7190 in 2025, we saw the pair eventually retrace as the RBA’s pause became entrenched. That historical pattern suggests that initial reactions to a single data point or meeting can be overdone. Therefore, any long positions should be managed with clear profit targets.

With the next RBA meeting and US non-farm payrolls report scheduled within the coming weeks, short-dated options offer a targeted way to trade these key event risks. We are focused on how the official statements respond to the latest inflation figures. Any strong deviation from current market pricing will likely trigger a sharp move.

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GBP/USD rose by over 0.20% to about 1.3560 as risk appetite improved and the US Dollar eased. A US-Iran ceasefire held, pushing oil prices and the USD lower, while US equities moved higher.

Fighting was reported on Monday as the US Navy began ‘Operation Freedom’ and Iran retaliated during a continued blockade of Iranian ports. Reports also said the US military destroyed six Iranian boats linked to plans to block shipping in the Strait of Hormuz.

Market And Data Drivers

Iran reportedly resumed attacks on the UAE, damaging oil facilities and causing a spike in oil prices. In US data, the ISM Services PMI fell to 53.6 in April from 54 in March; employment improved from 45.2 to 48, and prices paid stayed at 70.7.

The US trade deficit widened in March, with imports up 3.6% and exports up 3.1%. Job openings fell to 6.866 million from 6.922 million, below forecasts of 6.83 million.

In the UK, markets shifted from expecting two rate cuts to pricing nearly 68 basis points of tightening by end-2026. The UK 30-year Gilt yield peaked at 5.787%, its highest level since 1998.

We need to remember that the optimism from last year’s fragile US-Iran ceasefire was a temporary driver for Sterling. At that time in 2025, GBP/USD was pushing towards 1.3600 on hopes of improved risk appetite. Today, the pair is trading significantly lower, near 1.25, showing that fundamental economic drivers have since taken over.

The signs of a US slowdown we saw in 2025, like the ISM Services dropping to 53.6, have become more pronounced. Recent data for April 2026 shows the ISM Services PMI actually fell into contraction territory below 50, which is a much clearer signal of economic weakness. This confirms the trend we were watching last year, but the reality of it is now weighing on market sentiment more heavily.

BoE Expectations Reversal

The biggest shift for us is in Bank of England expectations, which has completely reversed. Last year, markets were pricing in nearly 68 basis points of rate hikes by the end of 2026, which supported the Pound. As of today, money markets are pricing in at least 50 basis points of rate cuts from the BoE this year as UK inflation has cooled faster than anticipated.

This policy reversal is clearly visible in the Gilt market, providing a solid anchor for our trading view. We saw the 30-year Gilt yield peak at an alarming 5.787% during the sell-off in 2025. That yield has now retreated to around 4.7%, reflecting the market’s conviction that the next move from the BoE is down, not up.

While geopolitical tensions in the Middle East persist, they are no longer causing the dramatic oil price spikes we saw during the direct US-Iran confrontations of 2025. The market seems to have priced in a level of sustained risk, making economic data and central bank policy the primary focus. This means we should focus less on headline risk from the Strait of Hormuz and more on inflation and employment figures.

Considering this major shift from expected BoE hikes to expected cuts, the path of least resistance for GBP/USD appears to be lower. For derivative traders, buying put options on GBP/USD could be a prudent strategy to position for further downside, especially heading into the next BoE meeting. Volatility is likely to increase, making options a more capital-efficient way to express a bearish view compared to shorting the spot market directly.

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Standard Chartered reported that the RBA raised the cash rate to 4.35% at its 5 May meeting, decided by an 8-1 vote. The policy statement referred to upside risks to inflation.

The RBA also warned that a prolonged energy crisis could weaken demand and reduce inflation pressure, with possible effects on the labour market. The note also cited elevated energy prices and potential fuel shortages as risks.

Policy Signals And Market Reaction

At the press conference, Governor Bullock used a less hawkish tone than the statement. Standard Chartered’s baseline view is that the cash rate stays at 4.35% for the foreseeable future.

The report said further tightening is still possible but would face a high threshold. It added that the risk points to another hike in the second half of the year if growth remains above trend despite prior tightening.

The piece was produced with an AI tool and reviewed by an editor. It was attributed to the FXStreet Insights Team, which curates market observations and analyst commentary.

A year ago, we were watching the Reserve Bank of Australia lift the cash rate to 4.35% with a clear risk of another hike on the cards. The debate in May 2025 was whether surprisingly strong growth would force the RBA’s hand for one more move. Governor Bullock’s softened tone at the time only added to the market’s uncertainty.

Outlook For Rates And The Australian Dollar

That risk of another hike did materialize in the second half of 2025 as inflation proved stubborn, pushing the cash rate to its current level of 4.60%. Since that final move, the RBA has been on a prolonged pause. The tighter monetary policy has now had a full year to work its way through the economy.

Today, the picture has changed significantly, with the focus shifting from hikes to the timing of the first cut. The latest March quarter CPI data showed annual inflation has eased to 3.1%, which is moving closer to the RBA’s 2-3% target band. This is a marked improvement from the higher readings we saw throughout 2025.

Furthermore, economic activity has clearly slowed, with GDP growth for the last quarter of 2025 coming in at a tepid 0.2%. The labour market is also showing signs of loosening, as the unemployment rate has gradually ticked up from below 4% last year to a more recent figure of 4.2%. These statistics confirm that the past rate increases are now effectively constraining demand.

For traders, this means the implied volatility in AUD options may not fully price in the dovish pivot expected in the latter half of this year. We believe positioning for lower rates through instruments like interest rate swaps could be advantageous. The market is currently pricing a 50% chance of a 25 basis point cut by the fourth quarter of 2026.

This environment suggests looking at strategies that benefit from a weakening Australian dollar, especially against the US dollar. With the Federal Reserve signaling it may hold rates higher for longer, the policy divergence between the two central banks is becoming more pronounced. Considering AUD/USD put options or selling into rallies could be a prudent approach in the coming weeks.

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European gas benchmark TTF rose after renewed tensions in the Persian Gulf and reached its highest level since early April. TTF settled 5.7% higher on the day.

EU LNG imports in April fell from record levels in March, but LNG send-outs stayed seasonally high. This has kept EU gas storage rising, approaching 34% full compared with a 5-year average of almost 46% full.

Market Is Underpricing Gulf Risk

The report says European gas and Asian LNG markets are pricing in too little disruption to supply linked to the Persian Gulf. It adds that the global market has limited options to replace LNG losses from the region.

The report states that rebalancing would likely require further demand destruction caused by higher prices. It says higher prices may be needed to reduce demand enough to match available supply.

The article was produced using an Artificial Intelligence tool and reviewed by an editor.

We are seeing European gas prices climb to their highest point since early April, with front-month TTF futures pushing past €40/MWh. However, the market seems to be underpricing the serious supply risks stemming from new tensions in the Persian Gulf. This suggests that the current price does not fully reflect the potential for disruption.

Low Storage Leaves Limited Buffer

Our vulnerability is clear when looking at storage levels, which are currently near 34% full. This is well below the five-year average of almost 46% for this time of year. Such a deficit provides a much smaller buffer against supply shocks than we have been used to.

The global market is tight, and our increased reliance on LNG since the supply shifts of 2025 makes any threat to producers like Qatar, a top global supplier, extremely significant. We saw during the price spikes of 2025 how even minor disruptions can cause extreme volatility when inventories are low. This current market calmness feels disconnected from that recent memory.

There is very little spare capacity in the global gas system to replace lost volumes from the Persian Gulf. The primary mechanism to rebalance the market would be through demand destruction. For that to happen, prices will need to move significantly higher to force industrial and power sector cutbacks.

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