Oil hit $117 a barrel on Friday for the first time since April as fears of a fresh escalation in the Iran war grew. Brent has gained 20% since the start of September, and the rise pushed US inflation expectations higher.
Brent crude, the international benchmark, climbed as much as 3.5% to $117.14 a barrel during afternoon trading in New York on Friday. The move threatens to unleash a new bout of inflation.
The surge amounts to a jump of 20% since the start of September, according to the Financial Times. Analysts said it reflects concerns that the US and Israel could escalate attacks on Iran after November's US midterm elections, along with the draining of global oil inventories.
Tanker attacks and Houthi strikes raise the stakes
Iran stepped up attacks on tankers passing through the Strait of Hormuz this week. Its state television service claimed on Thursday that seven oil tankers were struck by attacks or hit naval mines.
Saudi Arabia is under pressure too. The US pulled some diplomatic staff and their relatives from the kingdom because of increasing Houthi attacks. Oilprice.com reports that Saudi Aramco ordered staff to evacuate its Dhahran headquarters after the Houthis attacked it. The escalating Saudi-Houthi conflict also helped lift Brent 4% on the week, Oilprice.com says.
Helima Croft, head of global commodity strategy at RBC Capital Markets, framed the rally in military terms. According to the Financial Times, she said: "'Over soon' soundbites are no match for active missile fire."
Inflation expectations and yields climb
The rally came despite more crude flowing through the Strait of Hormuz. Shipments from Gulf producers excluding Iran averaged 24.6mn barrels a day in the week to October 18, against a 23.3mn prewar average, according to preliminary Kpler data. Analysts caution that the data is much more volatile than before the war.
Fuel and rates moved with crude. Gasoline and diesel in New York harbour rose about 1.5% to $3.15 a gallon and $4.81 a gallon, respectively. The five-year US break-even rate rose 0.08 percentage points to 2.47%, and the 10-year Treasury yield gained 0.03 percentage points to 4.99%.
Equities diverged. The Nasdaq 100 rose 0.4% after tumbling 2.9% on Thursday, while the S&P 500 fell 0.2%.
Sources: Financial Times, Oilprice.com
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