Crude oil prices continued to rise on Tuesday as uncertainty over the reopening of the Strait of Hormuz deepened, raising fresh concerns about inflation and the possibility of further interest rate increases in the United States.
Oil has gained roughly 10 per cent over the past week, with the United States and Iran showing little sign of reaching an agreement that would facilitate the reopening of the strategically important waterway. The latest developments have increased concerns among traders about prolonged disruption to global oil supplies.
At about 0405 GMT on Tuesday, Brent crude futures were down marginally by 10 cents, or 0.11 per cent, at $87.62 per barrel, while US West Texas Intermediate crude fell five cents, or 0.06 per cent, to $82.08 per barrel.
Despite the small declines recorded at that point in trading, both benchmarks had posted significant gains in the previous session, rising by about five per cent as tensions surrounding negotiations intensified.
US-Iran tensions weigh on oil market
The latest uncertainty followed comments by US President Donald Trump that Washington would seek compensation from Iran for losses associated with the conflict as part of any peace negotiations.
Trump's position came after Tehran demanded US war reparations as a condition for resolving the crisis, further complicating efforts to reach an agreement.
The latest exchange has raised doubts about the possibility of a swift diplomatic breakthrough. Trump had previously indicated that he was taking a less aggressive approach to the conflict and could rely more heavily on economic pressure rather than additional military action.
Market analysts say the absence of encouraging developments surrounding negotiations has continued to put upward pressure on crude prices.
Jason Wong of BNZ said the lack of positive news regarding efforts to reopen the Strait of Hormuz was contributing to the continued strength in oil prices.
Strait of Hormuz remains crucial to global oil supplies
The Strait of Hormuz is a strategically important waterway for international energy markets. Continued uncertainty over its reopening has therefore heightened concerns about the wider implications for crude supply and prices.
Stephen Innes, global strategist at Quintex Intel, described the situation as a struggle in which both sides were using oil as an economic weapon.
The continuing standoff has fuelled expectations that oil prices could remain elevated for some time, creating another potential source of inflationary pressure for economies around the world.
Higher oil prices could affect US interest rates
The renewed rise in crude prices has also increased concerns about inflation in the United States.
Higher energy costs can contribute to broader price pressures, potentially making it more difficult for the Federal Reserve to ease monetary policy. The prospect of rising inflation has consequently increased speculation that the US central bank could raise interest rates during the year.
The development comes shortly before the release of US consumer price data, which investors are closely watching for indications of the direction of monetary policy.
Although a surprise decline of more than 20,000 jobs in the US economy last month had reduced some expectations of a Federal Reserve rate increase, renewed inflationary pressure from oil could alter the outlook.
Cleveland Federal Reserve President Beth Hammack said one 25-basis-point adjustment alone would probably have limited impact on the economy, while cautioning against predicting how many moves might ultimately be required.
Global markets mixed
The uncertainty in the oil market was reflected against a mixed performance across Asian equities.
Markets in Shanghai, Wellington, Taipei and Manila recorded declines, while Hong Kong, Sydney, Singapore and Seoul posted gains. Tokyo's market was closed for a public holiday.
By around 0215 GMT, Brent crude was reported at $87.97 per barrel, up 0.3 per cent, while WTI stood at $82.40 per barrel, also up 0.3 per cent.
The Dow Jones Industrial Average had closed 0.1 per cent lower at 53,975.98, while London's FTSE 100 declined 0.4 per cent to 10,862.50.
What is driving the rise in oil prices?
The latest increase in crude prices is largely linked to uncertainty over the reopening of the Strait of Hormuz, the continuing US-Iran standoff and growing fears that disruption could persist, placing additional pressure on global energy markets.
Key oil price figures
- Brent crude: $87.97 per barrel, up 0.3 per cent at around 0215 GMT.
- WTI crude: $82.40 per barrel, up 0.3 per cent.
- Brent earlier in trading: $87.62 per barrel.
- WTI earlier in trading: $82.08 per barrel.
- Weekly movement: Crude prices have risen by approximately 10 per cent over the past week.
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