Brent crude may stay between $95 and $115, says Geoffrey Dennis

Geoffrey Dennis, Independent EM Commentator, cautions against expecting a sustained decline in crude oil prices following US President Donald Trump's comments on Iran. He believes Brent crude could continue trading in the $95-$115 per barrel range unless there is significantly more progress towards peace.

On global equities, Dennis believes the recent weakness in AI stocks does not necessarily signal the end of the AI trade, as strong earnings growth could continue to support valuations.

However, disappointing earnings from some companies have dented investor confidence, while massive spending commitments on data centres and computing capacity remain a key risk for the sector.

He also expects a possible Democratic sweep in the US midterm elections, which could increase regulatory pressure on AI companies.

[faq type="interview" title="This is an edited transcript of the interview."][ques][/ques][ans][/ans][/faq][faq type="interview"][ques]How do you explain the catalyst behind the big weakness we've seen in artificial intelligence (AI) stocks globally?[/ques][ans]Obviously, the spending by a lot of these AI companies on data centers, compute, etc., is clearly a risk. I think the key for me, and one of the reasons why we've seen this modest sell-off in the Nasdaq, and obviously AI stocks have done worse, as you said at the beginning, is that the earnings this time have really disappointed for a number of these companies. In other words, if earnings growth holds up, the valuations on some of these stocks are not that bad. If earnings disappoint, the selling will be pretty heavy. I'm not an expert on any individual stock here, but as I've said before, I am not that negative about this sector going forward because I think there will be very strong earnings growth for a lot of these companies. But obviously, there's been some dent to the excitement about the AI trade over the last three or four weeks.[/ans][/faq][faq type="interview"][ques]The midterms, the prediction markets are saying it's a Democratic sweep. What's your sense? What's your assessment?[/ques][ans]Well, of course, the story is that the Republicans are saying the polls will be wrong, as they've been wrong in the past. Now, the most recent polls that I have seen show that the Democrats could easily pick up a net six or seven Senate seats. They only need to pick up four to get a majority. So, if the polls are right, it's a sweep for the Democrats. We just have to see whether the polls are right or not. I think the most material issue that comes from a Democratic sweep, or indeed a different result, is that a Democratic sweep will increase fears of greater regulation of AI companies, and that could therefore be a negative for the market, including the sector, going forward. Having said that, of course, a Democratic win and sweep, as you've just said, is pretty much priced in now, given how terrible Trump's approval ratings are and what these polls are showing. What's important is that neither party has any sort of plan to deal with the very serious US fiscal position, the debt situation and the deficit. So, whoever wins, I don't think it necessarily means anything for fiscal policy. Which means the Fed, on the policy front, will remain the only game in town. And how fast do they raise interest rates from here? So, my bet is that the Democrats do get a clean sweep, but I think it's not absolutely guaranteed.[/ans][/faq][faq type="interview"][ques]The other leg of this entire thing, so many big ones, the Iran situation. How do you read it? President Trump is talking down strikes after the midterms, after the elections, and the Wall Street Journal says that there have already been strikes on this island. So, how should one read it? Oil prices are down big time.[/ques][ans]Yes, oil prices are down big time because of Trump's comments, and I think that's what we should focus on. The market, for many weeks, has assumed that after the Israeli elections and after the US elections, there will be further attacks on Iran, possibly led to a great extent by Israel as much as by the US. Now, if Trump is backing away from that because apparently Iran is so weak and there's no need for further attacks because the whole thing is going to collapse, well, obviously that would be good for oil prices. But frankly, I have a lot of suspicion about a lot of these things that are said, and so I'm not sure I would hang my hat particularly on the fact that oil prices are going to continue to fall here. We have to see what's going to happen because, for sure, there's a good chance the new Israeli government will be trying to push Trump to attack Iran after the elections. So, that's a great unknown. It's very welcome to see the oil price down today. I think it's probably still trading in a $95-$115 per barrel range for Brent, and lower than that, I think, requires much, much more progress towards peace.[/ans][/faq]

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