Oil prices jumped to a new six-week high on Thursday after fresh U.S. Department of Defense strikes against Iran and renewed Israeli threats against Tehran. Such developments have greatly exacerbated market fears of Middle East energy supply disruptions. Both types of crude futures were extending gains into a fourth day, with Brent futures up 1.7% to $97.29 a barrel and U.S. West Texas Intermediate (WTI) crude up 2.2% to $93.04.
The latest attacks are the biggest amount of Iranian-U.S. firing since July. A total of 18 people were killed and 108 wounded in the strikes, Iranian health minister Alimin Kazemnejad told the media. Besides, the Iranian Red Crescent reported several casualties at a beach wedding and three Iranian Army pilots were said to have been killed. After the surgery, officials in the Israel Ministry of Defense re-emphasized the warnings that Iran would be “crippled” if it struck back against Israel.
The war has direct implications for key trade routes by ships. Initial maritime data, similar to the data for transits monitored by International Maritime Organization, showed that six commodity vessels transited the Strait of Hormuz on Wednesday. This is a significant decrease from the 10-day average of some 13 ships. This is not all that has led to the tensions, however, as Iran has also increased the number of non-compliant vessels it will be fining, confiscating or detaining if they try to pass through the strait.
Global energy markets continue to be tightly regulated as regional disruptions continue. Those analysts citing macroeconomic data like that seen by the U.S. Department of Energy say that the continued drop in world oil stocks is directly driving up prices. However, Iraq has been able to boost its oil output to about 2.34 million barrels per day in August compared with 1.35 million bpd in July despite regional bottlenecks. Partly driven by cheap discounts on the oil of heavy crude and certain Iranian permits for Iraqi tankers to make safe passage across the Hormuz Strait.
The impact of these supply pressures is significant and is affecting wider financial markets. In the current complex mix of economic news and growing worries about inflation, traders have been upping their odds that the Board of Governors of the Federal Reserve System will hike interest rates later this month.
