Brent crude settled above $100 a barrel on Wednesday for the first time in seven weeks after Iran and the U.S. struck tankers in the biggest wave of shipping attacks since the war began. The escalation is tightening Strait of Hormuz supply and reviving inflation worries just as the Federal Reserve prepares its next rate decision.
Brent crude futures settled up $3.29, or 3.4%, at $101.21 a barrel on Wednesday, touching an intraday high of $101.58 after Iran and the U.S. struck tankers in the biggest wave of attacks on shipping since the six-month war began. The escalation threatens to worsen the disruption of energy supplies from the Middle East.
U.S. West Texas Intermediate crude settled up $3.02, or 3.25%, at $96.05 a barrel, with both benchmarks closing at their highest level since May 22. MarketWatch reported that both contracts are now up more than 60% since the start of the year.
Strikes widen across the Gulf
Iran said on Wednesday it had attacked 10 ships near the Strait of Hormuz, and the U.S. sank five Iranian oil tankers, in a sharp escalation of the war. U.S. Central Command struck the vessels after Iran's Islamic Revolutionary Guard Corps targeted a U.S. Navy warship with ballistic missiles twice in the prior two days. Iran-backed Houthi attacks on Saudi energy facilities have also set oil installations ablaze this week, widening the threat to alternative shipping routes.
Supply tightens through Hormuz
Shipping through the Strait of Hormuz, which normally carries about one-fifth of the world's oil and gas supply, has slowed sharply. Six commodity vessels passed through the strait on Tuesday, down from nine a day earlier and below the 10-day average of about 12, according to preliminary Kpler data.
Flows had reached 8 million to 9 million barrels per day in the week before fighting resumed on August 30, but have since fallen below 2 million bpd, Rystad Energy chief economist Claudio Galimberti said. Dennis Kissler, senior vice president of energy trading at BOK Financial, said "the near-term fundamentals have suddenly turned to much tighter supplies."
Inflation pressure builds ahead of Fed decision
The rally has already reached consumers: U.S. gasoline prices are averaging about $4.22 a gallon, while diesel is closing in on $6 a gallon. The benchmark 10-year Treasury yield climbed to its highest level since October 2023 as investors weighed the inflation implications of pricier energy. Fed funds futures traders were pricing a 39% chance of a 25-basis-point rate hike next week, down from over 60% last week, according to the CME FedWatch Tool.
Sources: Commodities & Futures News, MarketWatch.com
Trading involves risk.
Risk Disclaimer
