Monthly Outlook: Oil, Doom, Microsoft

As March gets underway, conflict in Iran has revived supply concerns in one of the world’s most critical energy corridors, with potential flow on effects for inflation and interest rate expectations. At the same time, AI driven layoffs and disruption narratives are testing assumptions about the resilience of software businesses and white collar employment. Finally, there has been a reshuffle in our most traded US stocks, with Microsoft emerging as the new leader amid debate around its AI related capital expenditure.

Oil’s surge sends a warning 

On 28 February, Israel and the US launched coordinated strikes on sites in Iran, marking the beginning of a broader conflict in the region. As markets assess the broader implications, the most immediate reaction has been in oil. Both WTI and Brent crude traded around $70 a barrel for most of February. At the time of writing, both are trading near $115 a barrel, a rise of more than 65%. Prices then crashed after reports that G7 countries could release up to 400 million barrels from emergency reserves to help ease supply shortages and stabilise the market. a statement, the group said it was prepared to take “necessary measures” to support global energy supply, which could include releasing strategic stockpiles, although no immediate release has been announced.

Globally, oil accounts for roughly 30% of primary energy consumption, while natural gas and coal each contribute about 25%. Against that backdrop, Iran’s direct contribution to global supply appears relatively modest at around 3 to 4% of the world’s oil and about 7% of global natural gas production. 

However, the bigger picture sits at the regional level. Conflict in the Middle East is rarely contained to one country, and risks often broaden across neighbouring producers. Persian Gulf nations collectively hold close to 48% of proven global crude oil reserves. In 2024, the region supplied about 30% of global oil production and 17% of global natural gas output. 

For energy markets, the key vulnerability is not only how much the Gulf produces, but how that supply reaches the world. Around 20% of the world’s daily oil and gas supply moves through the Strait of Hormuz, a narrow shipping lane along Iran’s southern coast that links the Gulf to the open ocean. It is one of the most strategically important waterways in the world and effectively the primary (and essentially the only) maritime exit for most Gulf oil exports, with roughly 90% of the region’s crude shipments passing through this single corridor. 

Iranian Revolutionary Guard officials have stated that the Strait of Hormuz is now closed and that any ship attempting to pass through will be attacked. If that position holds, it would represent a significant disruption to global energy flows. 

Among the CMC Invest community, the most traded oil and gas related names over the past week have included Woodside [WDS], Santos [STO], the BetaShares Crude Oil Index ETF [OOO], Exxon Mobil [XOM], Chevron [CVX] and the Energy Select Sector SPDR ETF [XLE]. Energy may not sit at the centre of most Australian portfolios, but its price has a way of touching almost every corner of the market. Through its influence on inflation, interest rates and consumer costs, moves in energy can ripple well beyond the energy sector, making it an important signal for investors to watch. 

Energy is the lifeblood of the modern world. Much of our standard of living depends on reliable and affordable energy. When energy prices rise, the effects can be felt quickly. Fuel is the most obvious example. In Sydney, Melbourne and Brisbane last week, petrol prices surged above $2 per litre, with some warnings they could rise as high as $3 if tensions persist. But it does not stop at the bowser. Higher oil prices increase the cost of transporting goods, running machinery and producing everyday items. Businesses may absorb some of those higher costs, but not all. Over time, part of the increase can be passed on to consumers. That is how rising oil prices can feed into higher inflation. 

Morgan Stanley estimates that a 10% rise in oil prices caused by a supply shock could lift headline US consumer prices by about 0.35% over the following three months. The longer oil remains elevated, the greater the potential impact on inflation. 

Inflation, in turn, influences interest rates. If higher oil prices push inflation up again, central banks may be less likely to cut rates. That could weigh on sharemarkets, especially if investors have been expecting easier policy. 

Rising petrol and energy prices are rarely welcome news for political parties in power. Higher living costs can quickly become a political issue, shaping voter sentiment and policy priorities. It is worth monitoring locally in Australia, but the US may be especially sensitive given midterm elections later this year. 

At the same time, escalating geopolitical tension can bring defence spending into sharper focus. Stocks such as Lockheed Martin [LMT], RTX Corporation [RTX] and DroneShield [DRO] may attract increased attention if governments signal higher military budgets or if the conflict broadens. 

Further, gold ETFs such as Global X Physical Gold [GOLD] and Perth Mint Gold [PMGOLD] could be on watch, given gold’s longstanding role as a potential safe haven during periods of global uncertainty. That said, gold has not seen sustained gains in response to the war so far. While prices initially spiked in the early stages of the conflict, they have since pulled back from around US$5,400 to US$5,100.

As we move through the rest of March, the focus shifts to duration and the risk of further escalation. Even if the G7 releases oil from strategic reserves, this would likely only place temporary downward pressure on prices if supply disruptions persist. The key is whether oil supply is meaningfully disrupted for an extended period and whether higher oil prices remain elevated long enough to appear clearly in inflation data. If that occurs, the effects may extend well beyond energy markets and begin to influence inflation outcomes and interest rate expectations in a more sustained way. 

How to break the doom loop 

For now, Iran and oil dominate the headlines. But in the background, another important theme continues to unfold. One we touched on last month: AI and disruption. February was full of new developments on this front, from fresh AI advances to AI linked layoffs. Critical to the month was the widely circulated “Citrini Report”. 

The Citrini piece laid out a fictional scenario detailing how rapid advances in AI could displace large numbers of white-collar workers. The projected chain reaction was essentially: job losses leading to weaker consumer spending, which in turn ripples through the broader economy, including areas such as housing and mortgages. 

Even as a thought experiment, the report appeared to unsettle markets. On the day of its release, the S&P 500 fell more than 1%, while the IGV software ETF dropped almost 5%. It is difficult to attribute those moves solely to the report, yet it clearly generated significant attention and became part of the broader market conversation. A wave of rebuttals quickly followed, challenging both its assumptions and its conclusions. 

Stepping back from the specifics, the episode is a useful reminder of the power narratives hold in investing. Our view of the world is always fallible and the future uncertain, so investors naturally rely on simplified models to make sense of events. We move through time confronting one uncertainty after another, and as reality asserts itself and fundamentals become clearer, attention shifts to the next issue.

Cast your mind back to the COVID period.  

In early 2020, there were fears of a catastrophic depression. Would COVID trigger a collapse worse than 1929? Would the financial system break? 

By mid 2020, the fear shifted. Would massive stimulus destroy currencies? 

In 2021 and 2022, the debate turned to inflation and rate hikes. Had we overstimulated? Was inflation transitory? Could we engineer a soft landing and avoid recession? 

The focus of our uncertainty shifts, but the presence of uncertainty itself never disappears. 

Importantly, narratives do not just attempt to make sense of the future, they can also shape it, for better or for worse. They influence decisions in the real economy, and those decisions can in turn reinforce the original story. This dynamic can persist even when the narrative rests partly on a flawed premise. In the case of a bubble, for instance, the surrounding narrative may be built on a real underlying trend, but also on a simultaneous misconception about that trend. 

This is, in essence, the concept of reflexivity. Popularised by George Soros, it is the idea that market sentiment can become self-reinforcing. 

Take AI as a current example. If the prevailing narrative is that it represents a do-or-die moment for businesses, companies may increase investment or accelerate layoffs in response. Those actions can then strengthen the perception that AI is transformative and urgent, further entrenching the narrative. At the same time, the practical demands of AI build out may begin to influence capital allocation and investment flows.

This dynamic is playing out as one of several key forces, alongside factors such as the Iran conflict, shaping the ASX year to date. AI expectations have generally been supportive for resources and energy, including names such as BHP Group [BHP], Lynas Rare Earths [LYC] and Paladin Energy [PDN], while weighing on some software companies such as WiseTech Global [WTC], Xero [XRO] and SiteMinder [SDR]. The divergence reflects shifting probabilities about who may benefit from AI-driven infrastructure demand and who could face disruption risk, rather than a settled outcome. 

The reinforcing loops of reflexivity, or binary do-or-die thinking, are a dangerous place for investors to operate. They push us towards conviction in a single outcome, increasing the risk of being caught out when reality takes a different path. 

A more resilient approach is what is known as probabilistic thinking. 

Probabilistic thinking is the practice of viewing outcomes in terms of likelihoods rather than certainties. 

Instead of asking, “Will this happen or not?”, you ask, “What are the possible outcomes, and how likely is each one?” 

When faced with uncertainty, you might, for instance, outline four different scenarios based on your research and assign probabilities to each.

This way of thinking reduces the pull of a single dramatic narrative. When new information arrives, you do not need to abandon your view entirely. You adjust the probabilities. This helps avoid thinking in all or nothing terms. 

A practical step is to write down your reasoning before you invest. What has to be true for this to work? What would invalidate the thesis? Which outcome feels most likely today? When results are released or the share price moves sharply, revisit that note. Did the assumptions hold? Has the balance shifted? 

Even for investors allocating passively to a broad ETF, the same discipline is useful because you are still implicitly dealing with probability and uncertainty. Which country or market are you choosing to invest in? What do current valuations imply? How concentrated is the index beneath the surface? What could cause the coming decade’s returns to look different from the last, and why? 

Alongside probabilistic thinking, careful vetting of information is critical. If a prominent technology executive with a stake in the AI race speaks about end times, an age of abundance, or the collapse of human labour, those claims may warrant a healthy dose of scepticism.

The Citrini report, for example, was co-authored by Alap Shah, the chief investment officer of Lotus Technology Management, a hedge fund that confirmed it held short positions in companies targeted by the report. 

Ultimately, if someone’s salary depends on you buying their narrative, that alone may be enough reason to pause and weigh it more carefully.

Microsoft steals US crown 

Microsoft [MSFT] knocked Nvidia [NVDA] off the top spot as the most traded US stock among CMC Invest clients in February, ending Nvidia’s long run as the platform favourite. What stood out even more was the conviction behind the move. Around 92% of all Microsoft orders were buys in February, compared with 77% buy side activity for Nvidia and 78% for Tesla [TSLA] over the same period. 

The shift comes at an interesting moment for the Magnificent Seven, with investors increasingly scrutinising valuations and capital expenditure as AI expectations rise, and the Roundhill Mag 7 ETF [MAGS] down around 7% year to date. 

Part of the spike in MSFT activity may have been driven by the size of Microsoft’s recent selloff. From its late October 2025 peak to February 2026, the stock fell by roughly 30%. It was caught up in the broader software selloff discussed earlier, and then dropped a further 10% in late January after reporting record AI-related spending alongside slightly slower cloud growth. Capital expenditure is now firmly in focus as Microsoft accelerates its AI infrastructure buildout. 

^{Source: TipRanks Analyst Consensus, CMC Invest, 9 March 2026}

At the same time, the earnings report showed a sharp increase in commercial remaining performance obligations, or RPO, which refers to contracted revenue yet to be recognised. Microsoft’s RPO backlog rose from $392 billion to $625 billion, an enormous jump and a positive sign for its growth outlook.

However, around 45% of that backlog is tied to OpenAI related commitments. While OpenAI sits at the centre of the AI boom, its long-term commercial durability at this scale remains relatively untested. Delivering on those contracts requires significant upfront investment in data centres and GPUs, making the revenue far more capital intensive than Microsoft’s traditional software model and prompting some investor unease. 

That tension was reflected on Microsoft’s Q2 conference call, where analysts raised concerns about the dynamic and questioned the durability of those AI revenues and the company’s level of exposure to OpenAI. 

While near-term jitters have emerged, many analysts continue to point to the resilience and quality of the business, supported by its diversified revenue base and history of navigating industry shifts. According to TipRanks, analysts still see upside, and many CMC Invest clients appear to be backing the long-term story amid the short-term noise. 

More broadly, the Magnificent Seven remain critical to watch in March. They carry significant weight in global indices and continue to act as bellwethers for the AI trade. Their direction may not only shape tech sentiment, but broader market performance as well. 

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