A resumption of military strikes between the U.S. and Iran after a month of dormancy led to a surge in oil prices on Monday; but the gains were modest in the face of a senior Iranian source telling media the latest exchange was a “limited and contained confrontation.”
As of mid-session Monday, Brent rose by 2.8 percent to $90.59 per barrel, while West Texas Intermediate hovered at about $86 per barrel.
Josh Owens, energy analyst at Oilprice.com, stated, “Brent’s move back above $90 is significant, but prices remain well below the levels seen during earlier periods of the war…Both benchmarks fell more than 4 percent last week, and the early 2 percent gain has done little to offset broader market losses.”
The skirmish between the U.S. and Iran resumed after the latter was caught deploying rocket launchers on Larak Island to send mines into the Strait of Hormuz on Sunday; following the U.S.’s strike against the launchers, Iran retaliated by firing on two U.S. bases in Jordan (to no effect), and the United Arab Emirates said it intercepted an Iranian drone over its waters on Monday.
While the U.S.’s latest response was pending, Washington was expected to roll out additional secondary sanctions against the Islamic republic, and treasury secretary Scott Bessent remarked that “I would think [Iran is] lashing out kinetically because they are losing economically.”
ING analysts wrote in a note, “The key is whether this ignites further rounds of strikes from both sides, and whether it leaves shippers hesitant to navigate the Strait of Hormuz,” noting that oil producers in the region have become more comfortable transporting crude through the waterway in recent weeks, with an average of 5 million barrels per day transiting the strait.
Meanwhile, higher energy prices because of the war have fuelled already stubbornly high inflation to the tune of above 3 percent, far beyond the US Federal Reserve’s target of 2 percent; consequently, traders saw a nearly 60 percent chance of a rate hike at the Fed’s September meeting, according to the CME FedWatch tool, a sharp increase from 41 percent a week ago (any increase could hurt the jobs market – and demand).