Oil prices surged, with Brent crude nearing $96 a barrel and West Texas Intermediate (WTI) above $91, driven by escalating military actions between the U.S. and Iran. Brent crude futures settled up 98 cents, or 1%, at $95.63 a barrel, while U.S. West Texas Intermediate crude futures rose 79 cents, or 0.9%, to settle at $91.01. Both benchmarks reached their highest levels since July 24, following a period of relative calm in the conflict. This marks a significant escalation after roughly a month of reduced tensions, with the U.S. targeting Iranian radar and mine-laying capabilities, and Iran retaliating.
The renewed fighting in the Middle East has heightened fears of disruptions to crude exports through the Strait of Hormuz, a critical maritime corridor through which a significant portion of the world's oil transits. More than 17 million barrels of oil transited Hormuz on Monday, a record since the war began. The U.S. oil price has gained 9% this week as the market prices in the increased risk of supply disruptions. These geopolitical tensions, coupled with other factors like Russian attacks on Ukrainian energy infrastructure and a 4.5 million barrel drop in U.S. crude inventories, have created a volatile trading environment for oil.
The surge in energy prices is fueling broader inflation concerns globally. European natural gas futures hit a three-year high, and fuel costs are rising, with diesel and gasoline prices in Europe exceeding $350 a barrel and over $150 in the U.S. Analysts like Thomas Pugh, chief economist at RSM U.K., emphasize that finished fuel prices like diesel are a more critical indicator than crude prices, with diesel pricing as if oil were $140 a barrel. This inflationary pressure is leading to a run-up in global bond yields, which have reached multi-year highs, and is putting pressure on central banks to continue raising interest rates, with the European Central Bank and Bank of England expected to implement further hikes by mid-2027.
