Oil Prices and Market Reactions Amid Gulf Conflict

Brent crude oil traded near $105 per barrel on Monday as Gulf countries reported more attacks by Iran with the war entering its third week, while share prices were mixed. A barrel of Brent, the international standard, was up 1.6% at $104.73, dipping slightly after opening above $106 per barrel. It’s up more than 40% since the war began. U.S. benchmark crude gained 1% to $99.68 per barrel. It’s up nearly 50% since the war began. In share trading, Tokyo’s Nikkei 225 fell 0.4% to 53,609.49, while the Kospi in South Korea climbed 0.6% to 5,521.17. Hong Kong’s Hang Seng rose 1.1% to 25,755.53 and the Shanghai Composite shed 0.7% to 4,066.40. In Australia, the S&P/ASX 200 gave up 0.4% to 8,583.50. Taiwan’s Taiex edged 0.1% higher, while India’s Sensex was down 0.1%. U.S. futures climbed, with the contract for the S&P 500 up 0.5% while that for the Dow Jones Industrial Average rose 0.4%. On Friday, Wall Street’s losses deepened as the war again pushed prices above $100 per barrel, ratcheting up inflationary pressure on the global economy. The S&P 500 fell 0.6% to 6,632.19. The benchmark index is now down 3.1% so far this year. The Dow Jones Industrial Average lost 0.3% to 46,558.47. The Nasdaq composite finished 0.9% lower, at 22,105.36. Those indexes also ended the week with their third straight weekly loss. Iran has retaliated against attacks by Israel and the U.S. by effectively stopping cargo traffic through the narrow Strait of Hormuz, where a fifth of the world’s oil typically sails. That has oil producers cutting production because their crude has nowhere to go. In just over a week since the closure of the Strait of Hormuz, more than 12 million barrels of oil equivalent per day have been taken offline, according to independent research firm Rystad Energy. However a handful of tankers have reportedly passed through the strait, adding to uncertainty. “The truth is that at this point, much of the market is operating in the fog,” Stephen Innes of SPI Asset Management said in a commentary. “For context, the strait normally handles roughly 25 oil and LNG tankers every single day.” If the war continues to hamper the production and transportation of oil from the Persian Gulf, it could cause a damaging surge in inflation. Members of the International Energy Agency are making a record 400 million barrels of oil available from emergency reserves, though it appears to have done little to reassure markets. Higher expectations for inflation complicate the Federal Reserve’s efforts to bring interest rates lower to help the economy. The U.S. central bank is not expected to cut rates at its policy meeting this week. A new snapshot of consumer spending Friday shows inflation crept higher in January, even before the Iran war caused oil and gas prices to spike. The Commerce Department reported Friday that consumer prices rose 2.8% in January compared with a year earlier. But excluding volatile food and energy, core prices rose 3.1%, the highest jump in nearly two years. Even so, consumers still lifted their spending at a solid 0.4% pace in January, with their incomes rising at the same pace, according to the report. The University of Michigan’s latest gauge of consumer sentiment on Friday showed consumer sentiment declined slightly to its lowest reading of the year as gasoline price hikes since the start of the war in Iran. Wall Street also got an update on how U.S. economic growth fared in the October-December quarter. The economy, hobbled by last fall’s 43-day government shutdown, grew at a sluggish 0.7% annual rate, a downgrade from its initial estimate last month. In other trading early Monday, the U.S. dollar slipped to 159.47 Japanese yen from 159.55 yen. The euro rose to $1.1442 from $1.1425.