Oil prices falling doesn’t mean the crisis is over: After the Fed raised rates, what the market has truly underestimated is the fragility of supply chains.
After the U.S. Federal Reserve raised interest rates, the global markets showed a seemingly contradictory picture: U.S. stocks rebounded, semiconductors surged, yields on U.S. Treasuries fell, and the VIX dropped to around 15. At the same time, the extent of damage to a key Saudi oil pipeline was even more severe than previously known, major Russian refineries stopped processing, and shipping risks in the Strait of Hormuz and the Strait of Mandeb have not been resolved.
This means the market is currently pricing in that the “worst-case scenario hasn’t happened yet,” rather than that energy and geopolitical risks have already disappeared.
Crude oil futures are falling, but physical supplies are becoming even more fragile
Latest satellite imagery and industry reports show that Saudi Arabia’s east-west crude oil pipeline has three damaged pumping stations—one more than previously assessed. In the near term, the pipeline transports about 4 million to 5 million barrels of crude per day, equivalent to 4% to 5% of global supply. It is also the most important alternative export route after the disruption of the Strait of Hormuz.
Some industry participants estimate that full restoration could take 5 to 6 weeks. Although there are also reports suggesting that part of the throughput could be restored during repairs, Aramco and the Saudi government have not yet released an official timeline. Reuters
Saudi Arabia is currently temporarily reducing the impact of the supply disruption through ship-to-ship transshipment via vessels in the sea area offshore Oman’s Sohar, and by increasing loading capacity at Gulf ports. This is an important reason why Brent fell back to $104.82 and WTI dropped to $101.91. Reuters
However, the oil price decline cannot be directly interpreted as supply normalizing.
Oman’s transshipment is still constrained by the need for shuttle tankers, offshore transshipment capacity, war-risk insurance, and safe passage through the Strait of Hormuz, making it difficult to fully replace the east-west pipeline for a long time. As long as Yanbu has not restored normal loading of tankers and European cargoes have not been rearranged, physical crude, diesel, and tanker freight rates could continue to stay higher than what the futures market reflects.
What the market truly needs to watch is not just whether Brent breaks above $110, but whether pipelines can actually resume throughput, whether Yanbu is loading ships again, and whether the diesel and physical crude differentials continue to rise.
Refining disruptions in Russia make refined products a larger inflation risk
After Ukraine drone attacks hit Russia’s Yaroslavl refinery, it has stopped crude processing. The damaged AVT-3 unit accounts for about 40% of the plant’s processing capacity; the other AVT-4 unit, which represents 33%, had already entered maintenance after the August 28 attack. In other words, roughly 73% of the plant’s main primary processing capacity is currently damaged or shut down.
This refinery has about 300,000 barrels per day of processing capacity and produces large amounts of diesel, gasoline, and fuel oil. Market participants say that as of Thursday, the plant is no longer offering fuel in Russia’s domestic commodity exchange.
The significance of this development is that the energy shock is shifting from “crude oil supply” to “refined product supply.”
Crude oil can be rerouted, transshipped, or drawn from inventories, but once refining facilities are damaged, equipment, spare parts, and engineering time are needed to restart operations. With Yaroslavl and Syzran, Saratov, and other refineries shutting down in combination, tight supplies of diesel, marine fuel, and aviation fuel could last longer than what crude futures prices currently indicate.
Diesel prices affect not only refueling costs, but also gradually feed through to commodity prices via trucks, shipping, agricultural machinery, aviation, and industrial logistics. This is also why, even after Fed rate hikes, the market still cannot fully rule out another rate increase in October or December.
After the Fed’s rate hike, stocks rebounded, but that does not mean tightening has ended
After the Fed raised the policy rate to 3.75%–4.00%, the market reaction on the first full trading day skewed more toward risk-on: Dow up 0.62%, S&P 500 up 1.14%, Nasdaq up 1.69%, with chip stocks up more than 3%. The U.S. 10-year yield fell from about 5.01% to 4.94%, and the VIX dropped to 15.44.
This rebound reflects three things:
First, the rate-hike magnitude matches expectations, and policy uncertainty has temporarily eased. Second, the pullback in oil prices has softened the most urgent inflation concerns. Third, long-term yields have not continued to break above 5%, giving high-valuation tech stocks some breathing room.
But the real-economy impact of the rate hikes will not be completed within a single day. Credit card rates, mortgage costs, corporate revolving credit, commercial real estate, and the financing costs of loss-making growth companies will transmit gradually over weeks to quarters.
The market currently prices a 53% probability that the Fed will raise rates again by 25 basis points on October 27–28, higher than about 27% a week ago. This is not a Fed policy commitment, but it shows the market still believes energy inflation and a resilient economy may force the Fed to keep acting.
Therefore, the stock market rebound after the Fed’s rate hike should be understood as a “short-term risk-relief trade,” not the start of a new easing cycle.
The next market turning point is the Bank of Japan
Currently USD/JPY is around 155.95. Over the past five trading days it has risen by about 1%, which reflects yen weakness rather than a rapid appreciation. Therefore, at this stage there is no evidence that yen carry trades have been unwound in disorder.
The two-year U.S.-Japan government bond yield difference is about 4.70% versus 1.86%, for a spread of roughly 284 basis points; the ten-year spread is about 194 basis points. These spreads still provide a carry incentive, but the interest-rate differential can only be viewed as a rough annualized carry baseline—it cannot be treated as risk-free return after factoring in financing costs, hedging, FX losses, and volatility.
The market assigns about an 80%+ probability that the Bank of Japan will raise rates by 25 basis points to 1.25%. Since the hike is largely priced in, what truly matters is not the 25 basis points themselves, but how Ueda and Kazuo describe the next rate increase.
If the Bank of Japan raises rates but remains cautious about subsequent policy, USD/JPY could stay around 155 to 157, keeping the carry trade fragile but not in disorder. If the BOJ signals it will accelerate rate hikes, USD/JPY could quickly break below 155.2, and at the same time VIX would need to break above 20, while SOXX and Bitcoin weaken—only then could a new round of carry unwind begin to spread.
Conversely, if the Bank of Japan unexpectedly does not raise rates or issues clearly dovish signals, USD/JPY could break back above 157. That would support carry to continue, but it would also increase the likelihood that the Japanese government intervenes again in the FX market.
Investment implications for the key watchlist assets
NVDA, TSMC, and SOXL benefit in the short term from the decline in U.S. Treasury yields, with SOXL bouncing more than 10% in a single day. However, SOXL is a daily three-times leveraged product, and the volatility drag caused by the prior sharp selloff will not disappear just because of a one-day rebound. If the BOJ triggers a rapid appreciation of the yen, or if energy prices push the U.S. 10Y back above 5.05%, SOXL remains one of the most likely instruments to amplify downside moves.
Bitcoin is holding near $76,300, while BITX and ABTC are seeing larger swings due to leverage, company beta, and news about crypto regulation. The U.S. sanctions on Iran’s BitBank target specific exchanges and funding networks rather than Bitcoin itself. But if enforcement expands to major offshore exchanges, stablecoin issuers, or OTC settlement providers, the risk premium for BITX and ABTC could rise noticeably. U.S. Treasury
The sharp one-day rallies in TEM, MRNA, and SLDP are more likely to include company-, industry-, and short-covering factors; they cannot be attributed solely to an improvement in the overall environment. TEM and SLDP are still more sensitive to long-term yields and financing costs; MRNA has relatively lower direct geopolitical sensitivity.
SLV needs to be assessed in two stages. In the early phase of acute deleveraging, silver may be sold off first due to dollar strength, real-rate pressures, and liquidity stress. Only when energy and trade-related inflation persist and yields stop rising can inflation-hedging and safe-haven demand become the dominant forces.
On risk-on trading days, BRK.B may lag growth stocks, but it still has relatively defensive characteristics; it is not an absolute safe-haven asset that never falls.
Conclusion: the market has eased panic, but risk has not been eliminated
Current cross-asset signals do not support a global disorderly deleveraging: Nasdaq and semiconductors are up, the Nikkei is strengthening, and both VIX and VXN are falling. Bitcoin has also not shown panic selling. Meanwhile, the yen has actually weakened over the last five days, and the carry trade has not reversed faster.
However, the market is treating Saudi Arabia’s replacement transshipment, the oil price pullback, and the clarity of central bank decisions as short-term positives. At the same time, it may be underestimating the time required to repair the pipeline, Russia’s refined product output cuts, and the stickiness of shipping and insurance costs.
A more reasonable approach at this stage is not to fully withdraw, but to avoid adding unnecessary leverage before the BOJ and energy events, and to confirm that SOXL, BITX, ABTC, and related margin exposure can withstand two-way gap risk.
The next three most important sets of signals are:
Whether USD/JPY rapidly breaks below 155.2, and even tests 152.
Whether VIX breaks above 20, accompanied by synchronized declines in SOXX and Bitcoin.
Whether Brent breaks above $110, or Saudi Arabia and Russia announce more actual supply disruptions.
Only when all three occur together—yen appreciation, declines in technology and crypto assets, and rising volatility—should the current “carry fragility” be upgraded to confirmation of an Unwind. As for now, the market is reducing panic, not risks.