Brent crude rose 6.4% to $89.47 a barrel after Donald Trump said the US would deliver a beating to Iran, following what Washington cast as an attempted surprise missile attack on American forces. ING analysts warn the escalation weakens the case for a quick de-escalation in the Persian Gulf, with tanker traffic through the strait of Hormuz still essentially halted.
Brent crude climbed 6.4% to $89.47 a barrel on Wednesday after Donald Trump said the US would deliver a beating to Iran in retaliation for what Washington cast as an attempted surprise attack. The international benchmark had been up 3.8% at $87.26 earlier in the session, before Trump's remarks accelerated the rise.
Iran had launched multiple ballistic missiles at US forces in the Middle East, ending a brief pause in fighting. The target was a US base in Jordan, according to Axios. The US military said it knocked down the Iranian missile barrage and worked with Saudi Arabian forces to strike sites in Iraq that Tehran-backed militias have used to launch attacks in recent days.
Supply risk spreads to Saudi infrastructure
The attempted attack threw "cold water on the idea of a swift de-escalation in the Persian Gulf", according to ING analysts Warren Patterson and Ewa Manthey. With Saudi oil infrastructure increasingly targeted, they wrote, 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 and Russia.
Meanwhile, tanker traffic through the strait of Hormuz remains essentially halted. Iran and Oman have held talks on managing vessel transits, but Iran has rejected Oman's proposal for a 50-50 shipping plan and instead wants oversight of both inbound and outbound vessels.
Oil complicates the Fed's decision
Higher oil prices and the continued sell-off in chip stocks create an uncertain environment before the Federal Reserve's interest rate decision later today, Deutsche Bank's Jim Reid notes. Markets priced a 32% chance of a rate hike as of last night, which Reid describes as 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. If the Fed holds steady, they expect at least a couple of dissents in favour of a hike.
Source: The Guardian
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