Global oil prices hit $101 per barrel as Middle East conflict roils markets
Pictured are wells at an oil field in San Ardo
By John Towfighi, Matt Egan, CNN
New York (CNN) — Global oil prices are back above $100 per barrel as fighting in the Middle East raises concerns about prolonged disruptions to oil supply.
Brent crude, the global oil benchmark, rose 3.36% Wednesday and settled at $101.21 per barrel. It was Brent’s first time hitting $100 per barrel since July and its highest closing level since May 22.
US crude oil rose 3.25% and settled at $96.05 per barrel, also its highest closing level since May 22.
Brent hit $100 per barrel early Wednesday after a day of conflict and war developments Tuesday that included the US striking Iranian oil tankers and earlier saw the Iran-backed Houthis attack Saudi Arabia.
Oil prices have been on a rollercoaster this year, oscillating as traders react to flare-ups in fighting and monitor oil tanker traffic through the Strait of Hormuz.
All told, Brent and US crude are each up more than 65% this year, raising the cost of energy across the globe.
The rise in oil prices has pushed up the price of oil products from gasoline to diesel, hitting consumers’ wallets and putting inflation in focus for central banks.
Back above $100 per barrel
Oil prices have climbed this month as conflict between the United States and Iran reignited. Tensions over the Strait of Hormuz are stoking concerns that oil tankers will continue to face obstacles trying to transit the key waterway.
The US struck four Iranian tankers in the Gulf of Oman and one near Kharg Island in response to attempted ballistic missile attacks on a US Navy warship, US Central Command said Tuesday. Kharg Island, located in the Persian Gulf, is a critical hub for Iran’s oil exports.
Oil prices initially jumped Tuesday after the Iran-backed Houthi rebels attacked Saudi Arabia, targeting oil and other infrastructure. Saudi-led forces vowed to respond, saying dozens of civilians had been injured.
The Yemen-based Houthis’ attacks on Saudi Arabia add to concerns that the Iran war is broadening out across the region, impacting more oil production, continuing to slow the global flow of oil and putting pressure on supply.
Higher prices at the pump
Brent’s rise above $100 per barrel is emblematic of the ongoing uncertainty over the flow of oil and threats to refineries in the Middle East.
It’s also a sign that rising energy prices could persist. The surge in oil prices this year has been accompanied by a rise in gas and diesel prices, putting more pressure on consumers.
The average price of gasoline surged by 7.3 cents per gallon on Wednesday, the biggest one-day increase since May 1, according to AAA data.
US gas prices are now averaging $4.22 per gallon — the highest level since June 4. By comparison, gas prices were just $3.19 per gallon at this point last year and $2.98 before the war with Iran started.
Normally, gas prices cool off in the fall as Labor Day weekend marks the end of the high-demand summer driving season. However, this year Labor Day gas prices were the highest on record.
Diesel prices have also surged. The US national average diesel price hit a record $5.94 per gallon on Wednesday, according to AAA data.
The surge in diesel means higher fuel costs for trucking and shipping companies, which can translate into higher costs across the supply chain.
The closure of the Strait of Hormuz has also hampered the global supply of liquified natural gas, adding to higher energy prices across the globe.
“The combination of expensive diesel, jet fuel, bunker fuel and natural gas is particularly uncomfortable for consumers around the world, who see their disposable income shrinking,” Ole Hansen, head of commodity strategy at Saxo Bank, said in a note.
Oil’s rollercoaster isn’t over
Brent first settled above $100 per barrel this year on March 12, then its highest level since 2022 when Russia invaded Ukraine.
After surging higher in April and May, Brent then tumbled and fell as low as $72 per barrel in June after the US and Iran said they reached an agreement to re-open the Strait of Hormuz.
But Brent resumed climbing as conflict persisted, topping $100 per barrel again in July before wavering and then hitting that mark again on Wednesday.
The price of oil has moved around as traders monitor traffic through the Strait of Hormuz and try to gauge whether the market is going to see bigger supply issues or not. The United States is trying to help oil tankers move through the strait while Tehran says it retains control.
“Traders will remain focused on how transportation volumes are moving out of the Middle East, as it now seems volumes can change very quickly,” Dennis Kissler, senior vice president of trading at BOK Financial, said in a note.
Fighting in recent months has spread to the Red Sea and the Bab al-Mandab Strait, complicating the outlook for the oil market. The Houthis have targeted the Bab al-Mandab Strait, a waterway off the coast of Yemen that connects the Red Sea to the Gulf of Aden. The Houthis’ attacks on Saudi oil infrastructure are also contributing to nerves that the region could face greater disruptions to oil production.
While disruptions to oil supply are in focus, analysts are also watching demand. China, the world’s largest oil importer, has helped keep a lid on oil prices by lowering its imports in recent months, analysts say. If imports pick up in China, it could push oil prices higher.
Adjusting forecasts
US officials bumped up their energy price forecast on Wednesday.
Brent crude is now expected to average $91 per barrel this year and $74 next, according to the US Energy Information Administration, the Energy Department’s forecasting arm. That’s up from the EIA’s forecast a month ago for $87 and $69, respectively.
The EIA similarly bumped its gasoline price outlook, projecting an average of $3.84 per gallon this year and $3.35 next.
The key difference is that officials have pushed out their forecast for when oil supply from the Middle East recovers from the war.
While the EIA noted “gradually increasing” flows of energy out of the Strait of Hormuz and the use of alternative routes, the new outlook cautions that “some constraints” will “persist through the end of the year.” That means Middle East crude production will stay below pre-conflict averages until the second quarter of next year, the EIA said.
By contrast, a month ago the EIA said its forecast assumed limits to the flow of oil through the Strait of Hormuz “persist through August.”
Markets on edge
The flare-up in tensions in the Middle East rattled the stock market: The S&P 500 fell 0.5% on Wednesday after falling 0.6% on Tuesday.
The S&P 500 is down just over 2% since hitting a record high in mid-August. Stocks continue to trade close to record highs, but the market has taken a step lower over the past month as the rise in oil prices has put nerves about inflation and higher interest rates back in focus.
Central banks across the globe are expected to hold rates steady, or even raise rates, in response to the rise in energy prices sparked by the closure of the Strait of Hormuz.
Bond yields across the globe have surged in recent weeks as traders brace for central bank rate hikes and assess the inflationary impact of higher oil prices. The 10-year yield traded at 4.84% on Wednesday, its highest level since 2023.
The stock market is entering a critical stretch where the combination of fighting in the Middle East and a series of central bank decisions will test investors’ resolve.
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CNN’s Zachary Cohen contributed reporting.
