Brent crude tops $100 a barrel, reviving US inflation concerns

A six-month-old US-Iran conflict has pushed the global crude benchmark back into three-digit territory, sending Treasury yields higher and rekindling the inflation debate just as Wall Street awaits this week's US price data.

"Anxiety over continued and damaging supply disruption, due to the escalation of the conflict between the US and Iran, is significantly higher," Tamas Varga, an analyst at brokerage PVM, said. "Inflationary pressure will affect oil demand, but for now supply is not able to match demand."

Brent futures rose as much as 2.3 percent in London to trade near $100.57 a barrel for November contracts, while US West Texas Intermediate crude gained about 2 percent to roughly $95. The move followed the US military's destruction of five Iranian Revolutionary Guard tankers in the Gulf of Oman and Tehran's warning that vessels in Kuwaiti and Bahrani waters should be evacuated. Brent has climbed a quarter since early last month and is up more than 60 percent this year, after peaking at $126.41 a barrel on April 30.

The oil milestone rippled through US equity futures, with the Dow dropping more than 300 points, or 0.5 percent, while S&P 500 and Nasdaq 100 contracts each lost 0.2 percent. Treasury yields pushed higher as traders weighed whether the commodity shock complicates the Federal Reserve's path, with the CME FedWatch tool pricing a 58.4 percent probability of a quarter-point rate increase at the September meeting. That repricing follows Friday's stronger-than-expected jobs report, which showed nonfarm payrolls rose 162,000 in August against a 55,000 forecast, with July revised to a gain of 21,000 from an initial loss of 23,000.

Oil's Supply Squeeze Deepens

The conflict, which began on February 28, has disrupted flows through the Strait of Hormuz, a chokepoint that carried about a fifth of the world's oil and liquefied natural gas before the war. Analytics firm Vortexa sees the amount of oil on ships at sea down by more than 150 million barrels since mid-July, while the International Energy Agency expects global supply to fall by 4.3 million barrels a day this year, roughly 4 percent. Roughly 8 million to 9 million barrels a day flowed through Hormuz in the week before fighting resumed on August 30, according to Rystad Energy chief economist Claudio Galimberti, though that has since fallen below 2 million.

Iran-backed Houthi militants have compounded the strain by striking Saudi Arabia's 400,000 barrel-a-day Jazan refinery in recent weeks, threatening crude shipments via the Red Sea that had served as an alternative route. A pickup in Chinese crude purchases this month has added to the pressure, with the world's largest importer resuming buying after a hiatus that had helped cap prices early in the conflict.

What the Price Data Could Decide

The stakes sharpen with consumer and producer inflation reports due later this week, the last major inputs before the Fed's September decision. A hot reading would reinforce the case for another hike just as energy costs feed through the pipeline — refined products such as diesel have rallied harder than crude as the conflict has spread, threatening a fresh round of inflationary costs for central bankers.

"The path of least resistance is a strong and steady grind higher as the war enters seven months," said Darrell Fletcher, managing director for commodities at Bannockburn Capital Markets. "The fundamental picture for products remains bullish with global inventories and reserves deteriorating."

Banks including Goldman Sachs, Bank of America and HSBC have raised their crude price forecasts in recent days, betting that shipping disruptions persist into next year. If Brent holds above $100 through the data releases, the inflation scare could translate into sustained selling pressure on equities and keep yields elevated into the Fed's September 17 decision.

This article is for informational purposes only and does not constitute investment advice.