Brent crude trades near $105 as Iran attacks more Gulf targets, while shares are mixed

Oil Prices Surge as Middle East Tensions Disrupt Global Supply Routes

Brent crude oil traded near $105 per barrel on Monday as the conflict in the Middle East entered its third week, with Gulf countries reporting additional attacks by Iran. The international benchmark dipped slightly after opening above $106, but still remains more than 40% higher since hostilities began.

U.S. benchmark crude gained 1% to reach $99.68 per barrel, marking a nearly 50% increase since the conflict’s outbreak. These dramatic price movements reflect growing concerns about global oil supply disruptions as the situation deteriorates.

The crisis has effectively halted cargo traffic through the strategic Strait of Hormuz, a narrow waterway through which approximately one-fifth of the world’s oil normally passes. Oil producers have been forced to cut production as their crude shipments face significant logistical challenges.

“The truth is that at this point, much of the market is operating in the fog,” said Stephen Innes of SPI Asset Management. “For context, the strait normally handles roughly 25 oil and LNG tankers every single day.”

In just over a week since the closure of the Strait of Hormuz, more than 12 million barrels of oil equivalent per day have been taken offline, according to independent research firm Rystad Energy. While reports suggest a handful of tankers have managed to navigate the strait, considerable uncertainty remains about the reliability of these crucial shipping lanes.

The International Energy Agency has responded to the crisis by making a record 400 million barrels of oil available from emergency reserves. However, this intervention appears to have done little to reassure increasingly nervous energy markets.

Global stock markets showed mixed reactions to the ongoing crisis. Tokyo’s Nikkei 225 fell 0.4% to 53,609.49, while Hong Kong’s Hang Seng rose 1.1% to 25,755.53. The Shanghai Composite shed 0.7% to 4,066.40, and Australia’s S&P/ASX 200 gave up 0.4% to 8,583.50. In South Korea, the Kospi climbed 0.6% to 5,521.17.

U.S. futures showed signs of optimism, with S&P 500 contracts up 0.5% and Dow Jones Industrial Average futures rising 0.4%. This comes after Wall Street experienced deepening losses on Friday as oil prices pushed above $100 per barrel, intensifying inflationary pressures on the global economy.

The S&P 500 fell 0.6% to 6,632.19 on Friday, bringing its year-to-date decline to 3.1%. The Dow Jones Industrial Average lost 0.3% to 46,558.47, while the Nasdaq composite finished 0.9% lower at 22,105.36. All three major indexes recorded their third consecutive weekly losses.

The prolonged disruption of oil supplies from the Persian Gulf threatens to trigger a damaging surge in inflation worldwide. This complicates the Federal Reserve’s efforts to lower interest rates and support economic growth. The U.S. central bank is not expected to cut rates at its policy meeting this week as it monitors these developments.

Recent economic data shows inflation was already creeping higher before the Middle East crisis caused oil and gas prices to spike. The Commerce Department reported that consumer prices rose 2.8% in January compared to a year earlier, while core prices (excluding volatile food and energy components) rose 3.1% – the highest increase in nearly two years.

Despite these inflationary pressures, consumers maintained solid spending habits, with expenditures increasing at a 0.4% pace in January, matched by income growth at the same rate. However, the University of Michigan’s latest consumer sentiment gauge declined slightly to its lowest reading of the year, reflecting concerns about rising gasoline prices since the conflict began.

The U.S. economy’s underlying growth has also shown signs of weakness. Economic activity in the October-December quarter expanded at a sluggish 0.7% annual rate, a downward revision from initial estimates. This slower growth was attributed in part to last fall’s 43-day government shutdown.

In currency markets, the U.S. dollar slipped to 159.47 Japanese yen from 159.55 yen, while the euro rose to $1.1442 from $1.1425.