Oil prices climbed nearly 4% in early trading on Wednesday following another round of overnight U.S. strikes against Iran. U.S. Secretary of State Rubio indicated that the Strait of Hormuz remains a key point of contention, stating Iran shows no genuine intent to engage in serious negotiations.
Shortly before 5 a.m. Eastern Time, the global benchmark crude for July delivery pared some gains but was still up 3.5% at $94.20 per barrel. The front-month Brent crude futures contract rose 3.8% to $87.56.
Speaking at an ASEAN foreign ministers' meeting in the Philippines on Wednesday, Secretary Rubio affirmed the U.S. commitment to a diplomatic resolution but accused Iran of violating agreements concerning the Strait of Hormuz.
"The issue is a lack of seriousness from Iran for negotiations," he stated. "If they are serious, we are prepared to be serious. If they are not, then we will take the necessary actions to defend our interests and those of our allies."
The U.S. Central Command conducted strikes for an eleventh consecutive night on Tuesday.
Targets included Iranian military command centers, naval facilities, aircraft hangars, drone storage sites, and military logistics infrastructure.
The military department stated the strikes aimed to "further degrade Iran's ability to threaten commercial shipping in the Strait of Hormuz."
Rubio noted on Wednesday that this critical waterway for oil and key commodity shipments remains a sticking point in talks. He asserted Iran seeks control over the strait, warning that conceding would set an "extremely dangerous precedent" globally.
Deutsche Bank analyst Jim Reid wrote in an early Wednesday note:
"The lack of a breakthrough in U.S.-Iran tensions over the past 24 hours has shifted market focus back to inflation. Brent crude closing above $90 a barrel for the first time in over a month has reignited concerns about broader stagflationary shocks. Prices climbed further above $92 this morning; with the U.S. confirming an eleventh night of strikes, there are few signs of a pullback."
As energy prices continue to rise, investor expectations for more hawkish Federal Reserve policy actions have intensified.
Reid added on Wednesday: "By Tuesday's close, market pricing implied a 26% probability of a July rate hike, the highest level since last week's softer-than-expected U.S. CPI print. This probability was 45% the day before the CPI release and fell to 10% immediately after."
Data from the CME FedWatch Tool showed early Wednesday pricing reflecting a 24.1% chance of a rate hike this month and a 69% probability of at least a 25-basis-point increase by September.
ING analysts noted in a report Wednesday morning that as expectations for a temporary U.S.-Iran ceasefire fade, supply risks in energy markets persist.
The analysts pointed out: "Supply disruptions facing the market are not limited to the Middle East. In the Black Sea, the Caspian Pipeline Consortium (CPC) terminal has halted acceptance of Kazakh crude; loading operations are suspended following a series of tanker attacks."
"The longer the suspension lasts, the greater the likelihood Kazakhstan will be forced to cut upstream crude production. The CPC terminal handles substantial volumes, with loadings around 1.7 million barrels per day in June."
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