Brent crude rose 3.8% to $87.26 a barrel after Iran fired ballistic missiles at US forces in the Middle East, ending a two-day pause in hostilities. ING analysts said the attempted attack undercuts hopes of a quick de-escalation in the Persian Gulf, with tanker traffic through the strait of Hormuz still essentially halted. The move lands hours before the Federal Reserve's interest rate decision.
Brent crude, the international benchmark, climbed 3.8% to $87.26 a barrel on Wednesday morning after Iran launched multiple ballistic missiles at US forces in the Middle East. The US military said it knocked down the barrage and worked with Saudi Arabian forces 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. Iran's target was a US base in Jordan, according to Axios. US Central Command said Islamic Revolutionary Guard Corps forces fired the missiles from Iran, escalating tensions after a two-day pause in hostilities between Washington and Tehran.
ING sees supply disruption risk growing
The strikes cut against expectations of a quick truce. ING analysts Warren Patterson and Ewa Manthey wrote that the attempted attack threw "cold water on the idea of a swift de-escalation in the Persian Gulf".
They pointed to reports that the 400k b/d Jazan refinery in Saudi Arabia has shut following Houthi attacks over the weekend, which if confirmed would add to tightness concerns in a refined products market already dealing with disruptions from the Persian Gulf and Russia. With Saudi oil infrastructure increasingly targeted, the pair said, the risk of more prolonged supply disruptions grows.
Shipping remains the other pressure point. Tanker traffic through the strait of Hormuz remains essentially halted. Iran has rejected Oman's proposal for a 50-50 shipping plan that would split inbound and outbound routes between the two countries. Tehran instead wants oversight of both directions.
Crude rally complicates the Fed's call
The move lands hours before the Federal Reserve's interest rate decision. Higher oil prices and the continued sell-off in chip stocks create an uncertain environment ahead of that decision, Deutsche Bank's Jim Reid noted.
Markets priced a 32% chance of a rate hike as of last night, which Reid called the most uncertain the market has been on whether the Fed will change rates going into a meeting since December 2018. 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.
Sources: The Guardian, CNBC
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