Oil Prices Soar as Supply Shortage Bites

The oil market is facing a significant problem as prices surge due to a scramble for supplies. The resilience of the oil market has been remarkable so far this year, but recent events have broken the laws of supply and demand. China's return to the market has led to a shortage, with Brent and WTI up 6% in the ninth consecutive day of gains.

Brent is at its highest level since May, while the current rise in energy prices will lead to an ugly CPI print for September. The Federal Reserve has talked about the transitory nature of oil price inflation, but President Trump's comments have partially sparked the rally. Trump stated that he thought the war with Iran would end after the midterms.

However, there are reports of advisors mulling a continued war until after Trump's term. This development will likely put central banks in a difficult position, with the bond market already reflecting concerns about oil prices. US 10-year yields have risen by 11 basis points to 4.94%, perilously close to the 5% level that no one wants.