Oil prices breached the $100 per barrel mark on Thursday, as escalating conflict in the Middle East, sparked by Houthi attacks on Saudi tankers in the Red Sea, drove a sharp rally. The surge in energy costs fuelled concerns that the US Federal Reserve may need to tighten monetary policy to curb inflation, sending gold prices lower. Copper also declined in London trading.
Crude Oil: Geopolitical Tensions Propel Prices Past $100 to a Two-Month High
Crude oil prices surpassed $100 per barrel for the first time in two months on Thursday. Iran-backed Houthi militants claimed responsibility for attacks on two Saudi Arabian oil tankers in the Red Sea, opening a new front in the regional conflict and raising the threat of more severe supply disruptions.
The renewed outbreak of war involving Iran has already severely hampered traffic through the Strait of Hormuz, the gateway to the Persian Gulf. Houthi actions in the Red Sea now endanger a key alternative route Saudi Arabia relies on to sustain oil exports if Hormuz shipping is interrupted.
Markets are also grappling with a series of attacks on the Caspian Pipeline Consortium oil terminal on Russia's Black Sea coast, a facility that handles the majority of Kazakhstan's crude exports.
Months of conflict have significantly depleted global inventories, increasing the risk of supply tightness. Should prices continue to climb, it could weigh further on the global economy.
"The scope of a second round of military conflict will be broader than the first," said Bob McNally, president of Rapidan Energy Group and a former White House official, in an interview regarding the war with Iran. "The risks are enormous, not just for shipping but for energy infrastructure as well."
Physical oil prices have also strengthened in line with futures. Dated Brent, the world's most important benchmark for physical crude, rose above $105 per barrel for the first time since late May.
Brent crude futures breaking through $100 marks a key psychological milestone. Oil market participants note that reaching this level increases political pressure on US President Donald Trump to end the war and curb surging energy costs. With retail diesel prices already exceeding $5 per gallon and gasoline above $4 per gallon, further oil price increases could place additional strain on businesses and consumers.
"If oil prices are in the $90 to $120 per barrel range by the end of summer, we could see a more significant impact on consumer spending," said Rob Haworth, senior investment strategy director at US Bank Wealth Management. "Wage growth is not keeping pace with oil price increases."
Meanwhile, President Trump has renewed threats to intensify strikes against Iran. In an interview with Axios, he stated he is considering a "massive attack," one "bigger than ever before," and said he is "close to making a decision."
September Brent crude rose 7%, settling at $100.69 per barrel. September WTI crude gained 6.2%, closing at $92.19 per barrel.
Precious Metals: Gold Declines Amid Rising Inflation Fears from Middle East Conflict
Gold prices fell as escalating Middle East conflict continued to push energy prices higher, reinforcing expectations that the Federal Reserve will tighten monetary policy to combat inflation.
The price of gold fell as much as 2.2%, trading near $4,050 per ounce, giving back some of the gains from the previous two sessions. According to Ewa Manthey, a commodities strategist at ING Bank N/V, the earlier rally was primarily driven by bargain hunting.
"The oil price surge linked to the Middle East conflict is complicating the outlook for gold," Manthey said. "The inflationary impact from higher energy prices could lead central banks to be more cautious about cutting interest rates, prompting some investors to take profits."
Yemen's Houthi group attacked Saudi oil tankers in the Red Sea, opening a new front in the US-Iran war. President Trump stated that if the Houthis attack ships again in the Red Sea, he will hold Iran responsible. Brent crude surged past $100 per barrel, while the two-year US Treasury yield rose for a sixth consecutive session.
In other news, the number of Americans filing new claims for unemployment benefits last week fell to its lowest level since 1969. Rising energy costs, combined with a still-resilient labour market, increase the likelihood that the Federal Reserve will maintain higher interest rates for a longer period.
Swap markets indicate a 36% probability of a Fed rate hike at next week's meeting. Markets have already priced in at least a 25-basis-point rate increase by September and show the possibility of another hike before the end of the year.
As of 3:53 pm in New York, spot gold fell 1.9% to $4,050.06 per ounce. Silver dropped 3.7% to $57.55 per ounce. Platinum and palladium also declined. The Bloomberg Dollar Spot Index rose 0.3%.
Base Metals: Copper Prices Fall
As of the close in London:
LME copper fell 1.6% to $13,594.5 per tonne.
LME aluminium slipped 0.1% to $3,188 per tonne.
LME zinc edged down 0.2% to $3,585.5 per tonne.
LME nickel was little changed at $17,233 per tonne.
LME tin declined 1.1% to $53,326 per tonne.
LME lead fell 0.2% to $1,893.5 per tonne.
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