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ECB warns oil shocks are still tilting energy prices and rate expectations
Addressing the ECB on July 22-23, Isabel Schnabel said Brent briefly fell to pre-war levels after a preliminary peace agreement but remains well below June peaks, while longer-dated oil futures stay elevated.
At its July 22-23, 2026 meeting, the ECB said financial markets since June 10-11 have been shaped by the Middle East conflict and developments around artificial intelligence. ECB Executive Board member Isabel Schnabel said oil prices have stayed highly sensitive to geopolitical news, with vessel traffic through the Strait of Hormuz rising temporarily before declining again after the latest escalation.
Schnabel noted that oil market swings were pronounced, including Brent crude briefly falling back to pre-war levels after a preliminary peace agreement was announced. She said that despite a recent rebound, current Brent prices remain well below recent peaks and below the levels seen just ahead of the June 10-11 Governing Council meeting.
The ECB also highlighted a divergence between short-term oil moves and broader interest-rate pricing. When oil prices dropped sharply, the one-year OIS rate one year ahead adjusted more modestly, but inflation compensation, and interest rate expectations, rose quickly again after oil rebounded.
The ECB attributed the persistence of higher oil risk to factors beyond spot crude, saying longer-dated oil futures remained elevated across the horizon. Schnabel cited an upward surge in crack spreads to new all-time highs, driven by tight inventories and constrained refining capacity from the destruction of refining facilities in the Middle East and in Russia, alongside natural gas prices staying well above pre-war levels.
Latest closeWTI crude $81.58 ▼0.9%|Brent $86.32 ▼2.5%|Nat gas $2.918 ▲5.3%