At the time of writing, Brent crude futures expiring in September continued to trade above $100 a barrel, while WTI crude futures expiring in September were trading at $91.74 per barrel.
- As crude prices continue to rise, markets are growing increasingly worried about an interest rate hike from the Federal Reserve.
- According to data from the CME FedWatch tool, markets see a 35.8% probability for a 25 basis point interest rate hike in the July meeting, up from 11.8% a week ago.
- Major oil exchange-traded funds are trading significantly higher amid the rise in crude prices.
Oil prices surged as escalating tensions in the Middle East fuel concerns over potential disruptions to global energy supplies, reigniting worries about inflation and reinforcing expectations that interest rates could remain higher for longer.
At the time of writing, Brent crude futures expiring in September continued to trade above $100 a barrel, breaching that level for the first time since May. Meanwhile, WTI crude futures expiring in September were trading at $91.74 per barrel.
Mohamed El-Erian, chief economic adviser at Allianz, noted in a post on X, “It’s one of those market days where the vast majority of asset classes are down, including stocks, bonds, crypto, and gold. The blame game points to the one asset class that is notably higher today: energy. And for good reason — $100 Brent crude complicates the economic, corporate, and policy outlooks.”
Interest Rate Hike Concerns Are Rising
As crude prices continue to rise, markets are growing increasingly worried about an interest rate hike from the Federal Reserve.
“Brent crude oil prices are now officially trading above $100/barrel up +42% in 20 days. Inflation expectations and interest rates are rising sharply again,” The Kobeissi Letter said in a post on X.
According to data from the CME FedWatch tool, markets see a 35.8% probability for a 25 basis point interest rate hike in the July meeting, up from 11.8% a week ago.
In September, markets put the probability of a hike at 81.4%, considerably higher than 52.4% a week ago.
Meanwhile, Wall Street financier Steve Rattner noted in an X post that the rising oil and gas prices are “brutal for inflation and Americans’ pocketbooks.” He added that there seems to be “no end in sight for their fundamental cause: Trump’s war of choice in Iran.”
Middle East Considers Oil Route Alternatives
Before the conflict with Iran, about 15 million barrels of oil from the Persian Gulf passed through the Strait of Hormuz each day. Amid the prolonged disruption of the critical waterway, concerns over energy supply are mounting.
Meanwhile, Yemen’s Houthi militants attacked oil tankers in the Red Sea, putting another key energy shipping route at stake.
Amid these developments, Gulf nations are reportedly accelerating plans to invest billions of dollars in pipelines that would reroute crude exports to ports on the Red Sea, the Gulf of Oman and the Mediterranean, according to a report from the Associated Press.
As per the report, Saudi Arabia is expanding use of its East-West pipeline, which carries crude from Abqaiq to the Red Sea port of Yanbu, while the UAE is fast-tracking a $3 billion pipeline to Fujairah on the Gulf of Oman, expected to add more than 1.2 million barrels per day.
Iraq is also advancing pipeline projects from Basra to Turkey’s Mediterranean port of Ceyhan, Syria’s Baniyas, and Jordan’s Aqaba on the Red Sea.
How Are Markets Reacting?
Shares of major oil companies and energy exchange-traded funds gained on Thursday. Battalion Oil Corp. (BATL) rose more than 11% at close and climbed over 4% overnight. Trio Petroleum Corp. (TPET) gained more than 2% after-hours, while Sky Quarry Inc. (SKYQ) jumped nearly 8% in extended hours.
On Stocktwits, retail sentiment around BATL, TPET, and SKYQ was ‘bullish’ as message volumes jumped by over 97%, 300%, and 368%, respectively.
The United States Oil Fund (USO) extended gains overnight after closing nearly 6% higher on Thursday amid ‘bullish’ sentiment. The ProShares Ultra Bloomberg Crude Oil (UCO) gained 3.5% at close and was continuing to rise overnight, while ProShares Ultra Bloomberg Natural Gas (BOIL) was up nearly 1% in extended trading hours.
Meanwhile, the SPDR S&P 500 ETF (SPY) and the SPDR Dow Jones Industrial Average ETF Trust (DIA) were rising overnight, while the Invesco QQQ Trust (QQQ), edged lower at the time of writing.
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