On Thursday, global oil prices soared past the $100-a-barrel mark amid intensifying conflicts in the Middle East. This escalation follows Iran-backed Houthi rebels from Yemen launching attacks on Red Sea shipping routes.
Brent crude, the benchmark for international oil prices, briefly reached $100.64 per barrel at 10:05 a.m. ET. This marked a notable jump of $6.57, or 7%, based on FactSet’s data. Meanwhile, West Texas Intermediate, the main U.S. crude benchmark, increased to $91.83 per barrel, reflecting a 5.8% rise.
Fuel prices at the pump are following the upward trend, with the national average for gas climbing to $4.09 per gallon on Thursday. This is a rise from $3.94 recorded just a week prior, according to statistics from AAA.
The stock markets reacted sharply to these developments, with both the S&P 500 and the Dow Jones Industrial Average experiencing a 1% drop shortly after trading began on Thursday, shedding 74 points and 514 points, respectively. The Nasdaq Composite, known for its technology stocks, fared worse, losing 1.8%.
The Houthi rebels claimed responsibility for attacks on two Saudi oil tankers in the Red Sea on Wednesday. This action heightened threats to maritime shipping in the Bab el-Mandeb Strait, a critical channel for approximately 7% of the global oil supply, as reported by Oxford Economics. This strait serves as a crucial passageway linking the Red Sea and the Gulf of Aden, facilitating sea trade.
The surge in oil prices complicates the outlook for the Federal Reserve, which is set to make its next interest rate decision on July 29. Resurgent oil prices threaten to push inflation higher, which could place pressure on the Fed to keep rates steady — or even introduce a hike – to counter rising prices, experts say.
“Rate cuts investors were counting on for later this year look a lot less certain today than they did even a week ago, and then they were on shaky ground,” said Nigel Green, the CEO of investment firm deVere Group, in an email.
There’s now a 36% probability the Fed could increase its benchmark rate on July 29, according to CME FedWatch, which uses 30-day Fed Funds futures prices to estimate the central bank’s interest rate decisions. A week ago, that probability stood at about 11%, its data shows.
The war also showed other signs of intensifying, with the U.S. upping the number of refueling aircraft deployed to Israel. Open-source flight-tracking data also showed American B-1 bombers leaving the U.K. The U.S. has launched 12 consecutive nights of strikes on targets across Iran.
Treasury yields rose amid higher oil prices, with the 10-year Treasury climbing to 4.71%.
The last time global oil prices settled above $100 was on May 22, data from FactSet shows.
Aimee Picchi