Middle East fighting raising fears of supply disruptions  

Durrant Pate/Contributor

Oil price jumped above US$100 per barrel on the international market today, amid escalating fighting in the Middle East, which is raising fears of further supply disruptions to an already chaotic market. 

Early in European trading, Brent crude, the global benchmark, tipped above $100, and by around 9:40 a.m. ET, was trading at US$100.90 per barrel. The move above US$100 was the first since July 24. At the same time, WTI, the US benchmark, was at just below US$96 per barrel. 

Brent has climbed about 25% since early August as hopes for a lasting end to the six-month US-Iran conflict have faded. American forces attacked Iranian tankers after Tehran tried to strike a US Navy warship with ballistic missiles, the US military said this morning.

The international benchmark previously peaked at US$126 a barrel in April before falling back, as hopes of a ceasefire grew. Attacks by Iran-backed Houthi militants this week also set Saudi energy facilities on fire, adding to concerns about oil shipments through the Red Sea and the Strait of Hormuz.

Falling flow through Strait of Hormuz

The Strait of Hormuz remains central to traders’ concerns. Oil flows through the waterway recently fell below 2 million barrels a day, Rystad Energy estimated, down from 8 million to 9 million barrels a day in the week before fighting resumed on August 30.

Although producers including the US, Canada, and Guyana have increased output, the International Energy Agency reported last month that global oil supply was expected to fall by 4.3 million barrels a day this year, or roughly 4%. 

Major banks have responded to the worsening supply picture by lifting their price forecasts. Goldman Sachs, Bank of America, and HSBC are among the firms that have raised their outlooks in recent days.

Higher oil prices can filter through the economy by increasing gasoline, shipping, and manufacturing costs. A sustained move near or above US$100 could add to inflation pressure and complicate the outlook for interest rates.