Oil prices fell to roughly $90 per barrel after soaring to nearly $120 earlier in the week. However, the situation remains volatile. Iran’s Revolutionary Guards have stated that they will not allow “one litre of oil” to be transferred from the Middle East if US and Israeli attacks continue.
Earlier, the G7 nations expressed their willingness to take the necessary steps to boost global energy supplies in the face of rising oil prices as a result of the US-Israel war with Iran. However, a meeting of G7 finance ministers and the International Energy Agency ended without an agreement to release strategic crude stocks.
Before oil, last week’s job market data also had a role in impacting the market sentiments. After weaker-than-expected payrolls data fueled inflation fears linked to the conflict, the expectations from the US Fed to cut rates aggressively dwindled.
Overall, a higher for longer rate environment and rising oil prices threatening a spike in inflation, have turned the mood against stocks. An increase in energy costs may stall the economy and rekindle inflation.
Concerns that a prolonged Middle East conflict could cause long-term disruptions to global growth also weighed on sentiment. A rising inflationary scenario with falling growth points towards a stagflation situation for the economy.
As the Iran conflict extends into its second week, oil shipments have ceased in the Strait of Hormuz, prompting several Middle Eastern producers, including Kuwait, Iran, and the UAE, to cut crude output due to nearing storage capacity limits. Energy markets are on edge due to a crisis occurring around the Strait of Hormuz, a critical chokepoint for about 20% of the global oil supply.
Increased pressure on oil prices is expected to continue unless the flow through the Strait of Hormuz is restored and regional tensions subside. Keep an eye on Trump pivot too, as asset prices are highly dependent on news around the Middle East tensions.
The next set of US CPI data arrives on Wednesday, revealing the inflation in the US for the month of February. But the impact of the war on consumer prices, which began on February 28, may start to be reflected in the US Consumer Price Index (CPI) data for March and April, or even later. The ongoing war may result in prolonged higher fuel prices for consumers and businesses globally, due to damaged facilities, disrupted logistics, and increased shipping risks, even if the conflict resolves swiftly.
Meanwhile, as oil prices rise, U.S. Senate Democratic Leader Chuck Schumer pushed Trump to release oil from the Strategic Petroleum Reserve. “President Trump should release oil from the SPR immediately to stabilize markets, lower prices, and stop the price shock that American families are already experiencing as a result of his reckless war,” Schumer said in a statement.
Oil prices have hit their highest level since 2022, leading to a decline in US stock futures amid rising tensions in the Middle East. Brent oil futures exceeded $100 a barrel, increasing to about $108 after a spike to $119, representing a roughly 17% rise from the previous close of $92.69 and a nearly 29% jump during the day on Monday.