US-Iran Hostilities Send Oil Prices Soaring

Oil prices rose on Friday (Sept 4) after the United States and Iran resumed military exchanges, ending the week substantially higher. Brent crude futures settled at US$96.28 a barrel, up 76 cents or 0.8%, while West Texas Intermediate crude futures finished at US$91.48 a barrel, up 18 cents or 0.20%. The rally in oil prices has pushed inflation and government borrowing costs higher around the world.

According to Claudio Galimberti, chief economist at Rystad Energy, all sectors of the economy are affected by diesel, which is one of the reasons why the government bond yields in the United States are so high. Average US diesel prices hit record highs as renewed US-Iran hostilities and Ukrainian attacks on Russian refineries increased supply disruptions.

The price of diesel could rise even further due to the sharp drawdown in inventories and as agricultural states in various parts of the country head into harvesting and planting seasons. Citi raised its average Brent crude price forecast for the third quarter to US$86 a barrel from US$80, saying the reopening of the Strait of Hormuz was taking longer than previously expected.