Brent crude rose 3.8% to $87.26 a barrel after Iran fired ballistic missiles at US forces in the Middle East, ending a brief pause in the fighting. Tanker traffic through the Strait of Hormuz remains essentially halted, and ING warned that the risk of more prolonged supply disruptions grows. The gain lands ahead of a Federal Reserve rate decision due later on Wednesday, which Deutsche Bank called the most finely poised in years.
Brent crude, the international benchmark for oil prices, rose 3.8% to $87.26 a barrel on Wednesday morning after the US military said it knocked down an Iranian missile barrage. American forces also worked with Saudi Arabia to strike sites in Iraq that Tehran-backed militias have used to launch attacks in recent days.
Washington cast the launch as an attempted surprise attack by Tehran, which had fired multiple ballistic missiles at US forces in the Middle East. Iran's target was a US base in Jordan, according to Axios.
Hormuz traffic stays halted
According to ING, the attempted attack threw "cold water on the idea of a swift de-escalation in the Persian Gulf". Analysts Warren Patterson and Ewa Manthey wrote that with Saudi oil infrastructure increasingly targeted, the risk of more prolonged supply disruptions grows.
There are reports that the 400k b/d Jazan refinery in Saudi Arabia has shut following Houthi attacks over the weekend. If confirmed, ING said, that would add to tightness concerns in a refined products market already dealing with disruptions from the Persian Gulf as well as Russia.
Meanwhile, tanker traffic through the Strait of Hormuz remains essentially halted. Iran and Oman have held talks on managing vessel transits, but Iran rejected Oman's proposal for a 50-50 shipping plan, which would put an inbound route on one country's side and the outbound route on the other. Tehran instead wants oversight of both inbound and outbound vessels.
Fed decision meets pricier oil
Higher crude oil prices and the continued sell-off in chip stocks create an uncertain environment ahead of the Federal Reserve's interest rate decision later on Wednesday, Jim Reid from Deutsche Bank notes. Markets priced a 32% chance of a rate hike as of the previous night.
That is the most uncertain the market has been on whether the Fed will change rates going into a meeting since December 2018, when the eventual 25bps rate hike was about 65% priced the day before. July hike pricing fell as low as 10% in mid-July following the soft June US CPI print before rising as high as 38% on Monday.
Deutsche Bank's US economists expect the Fed to leave rates unchanged but see the risks of a hike as significant, with the renewed escalation in the Middle East complicating the inflation outlook. If the Fed holds rates steady, they expect at least a couple of dissents in favour of a hike.
Source: The Guardian
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