Oil Prices Surge Above $110 Amid Middle East War Fears
The jump was a sign of growing concern that
the war in the Middle East will take a toll on energy supplies.
1.
Oil prices spike: Global oil benchmark Brent crude surged above
$110 per barrel,
the highest level since the pandemic.
2.
War impact: The rise is linked to the ongoing war in the Middle East,
raising fears about disruptions in energy supplies.
3.
Sharp increase since Feb 28: Oil prices are about 50% higher since the
U.S. and Israel began attacks on Iran.
4.
Asian markets fall: Stock markets dropped sharply—South Korea fell about 6%,
while Japan declined 4–5%.
5.
Peak price levels: Oil briefly climbed to $115–$120 per barrel
before easing slightly below $110.
6.
Strait of Hormuz disruption: The Strait of Hormuz, a key
route carrying about
one-fifth of the world’s oil, has been nearly closed for over a
week.
7.
Rising fuel costs: In the U.S., gasoline prices rose 16%
to around $3.45 per gallon,
and diesel increased about
22% since the conflict began.
8.
Natural gas also rising: Prices for natural gas have
increased, especially in Europe
and Asia, which rely heavily on imports.
9.
Government response: Officials say the
price spike includes a “fear
premium”, and disruptions may last weeks rather than months.
10.
Inflation concerns: Higher energy prices could increase inflation, complicating
decisions about interest
rate cuts.
11.
Investor expectations: Inflation expectations
have risen to about 4.5%,
pushing up government bond
yields and borrowing costs.
Oil
prices surged on Monday well above $110 a barrel, in a sign of growing concern that
the war in the Middle East will continue to take a toll on energy supplies.
It
was the first time in almost four years that the global oil benchmark, known as
Brent, cost more than $100 a barrel. Oil is now about 50 percent more expensive
than it was before the United States and Israel began attacking Iran on Feb. 28.
In
Asia, where economies are heavily dependent on imported oil from the Middle East,
stocks tumbled broadly, falling 6 percent in South Korea and 4 to 5 percent in Japan.
Oil
rose as high as $115 to $120 a barrel. The price came down below $110 a barrel after
reports that governments were taking steps to ease concerns about tightening supplies
of oil.
President
Trump, who campaigned partly on lowering the cost of energy, said in a post on Truth
Social on Sunday described the higher oil prices as “short term” and said they were
“a very small price to pay for U.S.A., and World, Safety and Peace.”
The
huge jump in oil prices suggests that traders are increasingly worried about being
able to access oil and natural gas from the Persian Gulf. The Strait of Hormuz,
a waterway on Iran’s southern coast, has been all but closed for more than a week,
preventing fuel produced in the region from reaching overseas markets. One-fifth
of the world’s oil and substantial amounts of natural gas normally move through
the strait each day.
With
little sign that shipping will soon be able to return to normal, higher oil prices
will continue to drive up prices at the pump at a time when many Americans are worried
about the economy. As of Sunday, the price of a gallon of regular gasoline had already
climbed about 16 percent since the war started, to a national average of $3.45,
according to the AAA motor club. Diesel prices had risen at a faster clip of around
22 percent.
Natural
gas, which is used to heat homes and generate electricity, has also become more
expensive, particularly in Europe and in Asia, which depend heavily on imported
fuel. Natural gas markets are more regional than oil markets, meaning that the United
States, as the world’s top natural gas producer, has been comparatively insulated.
Earlier
on Sunday, Energy Secretary Chris Wright sought to play down the risk that energy
prices would remain high for a long time.
“You’re
seeing a little bit of fear premium in the marketplace, but the world is not short
of oil today or natural gas,” Mr. Wright told CNN. He said he expected shipping
through the strait to be disrupted for weeks in the worst-case scenario, not months.
Mr.
Trump said last week that the U.S. Navy might escort tankers through the Strait
of Hormuz, but Mr. Wright said U.S. forces were focused on limiting Iran’s missile
and drone capabilities.
The
sudden increase in oil and gas prices has raised concerns about inflation. The Federal
Reserve typically counters rising prices by keeping interest rates high, to slow
the economy and the pace of inflation. But weak jobs data on Friday bolstered the
case for a rate cut, setting up a tug of war over the path forward.
A
measure of investors’ inflation expectations has risen sharply. Investors now expect
inflation to rise to around 4.5 percent over the next 12 months, from a forecast
of 2.3 percent at the start of the year.
That
has helped push up government bond yields, which underpin borrowing costs for companies
and consumers. The two-year Treasury yield, which is sensitive to changes in interest
rate expectations, has risen roughly 0.2 percentage points since the war began,
to 3.56 percent.