Oil settled at its highest level in almost four months on Thursday, touching $109 a barrel and reigniting a global sell-off in government bonds. US Treasury yields climbed to their highest levels in nearly two decades, while a weak Treasury debt buyback added further pressure. Separately, US diesel prices jumped 61% from a year earlier as the tighter fuel market fed through to consumers.
Oil prices settled at their highest level in almost four months on Thursday, reigniting a sell-off across global bond markets. Brent crude, the international benchmark, closed 6.3% higher at $107.63 a barrel before climbing further to $109 in late trading, and West Texas Intermediate rose by a similar margin.
Treasury yields hit multi-decade highs
Traders raised bets on a Federal Reserve interest rate increase as oil climbed. The 30-year US bond yield jumped as much as 0.08 percentage points to 5.37%, its highest level since 2007, while the 10-year Treasury yield rose 0.11 percentage points to 4.95%, edging toward the 5% mark.
Compounding the pressure, the Treasury's own buyback undershot its $6 billion target, with the government accepting just $5.2 billion of offers. A separate $22 billion auction of 30-year debt then fetched a high yield of 5.308%, up from 5.216% at the previous sale and the highest rate since 2001.
Supply fears drive the rally
The oil rally followed a string of supply shocks. Houthi rebels seized a vital Yemeni port, and an Opec report showed Saudi Arabia produced just 6.2 million barrels a day in August, the lowest monthly figure in 2026 and 23% below July's level.
According to the Financial Times, Bob McNally, founder of Rapidan Energy Group, said "The oil market is correcting its biggest mispricing since Russia-Ukraine in 2022." He said the earlier error was underestimating the size and duration of the disruption, and the current one is overestimating how quickly it will pass.
Diesel prices near a record
The tighter crude market is also reaching the pump. The American Automobile Association reported the US national average diesel price reached $5.98 a gallon, a 61% jump from $3.71 a year earlier, according to Crypto Briefing. Diesel prices are a benchmark for trucking, freight, agriculture and construction costs, so the jump signals higher expenses across those industries.
Equities fell alongside bonds. The S&P 500 slid 0.6% and the Nasdaq 100 dropped 0.9%, while the Stoxx Europe 600 lost 0.7%. Wholesale inflation also ticked higher: the Producer Price Index rose to a 5.4% annual rate in August from 4.7% the prior month, a bigger increase than analysts had expected, as resurgent fuel costs raised shipping costs across the economy.
Sources: Financial Times, Crypto Briefing
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