Brent Crude Futures Surge Above $100 as Middle East Tensions Escalate
Crude oil prices surged on Thursday as tensions in the Middle East escalated and markets grew increasingly worried about an interest rate hike from the Federal Reserve. Brent crude futures expiring in September traded above $100 a barrel for the first time since May, while WTI crude futures expiring in September reached $91.74 per barrel.
Mohamed El-Erian, chief economic adviser at Allianz, noted that 'it's one of those market days where the vast majority of asset classes are down' due to rising oil prices. The increase in energy costs complicates the economic, corporate, and policy outlooks, he said.
The United States Oil Fund (USO) extended gains overnight after closing nearly 6% higher on Thursday amid 'bullish' sentiment, while shares of major oil companies and energy exchange-traded funds gained. Gulf nations are accelerating plans to invest billions in pipelines that would reroute crude exports to ports on the Red Sea, the Gulf of Oman, and the Mediterranean.
As crude prices continue to rise, 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. The CME FedWatch tool reports that markets put the probability of a hike at 81.4% in September, considerably higher than 52.4% a week ago.
Wall Street financier Steve Rattner noted that 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.'