Oil prices jumped above $109 a barrel on Monday on concerns that energy supplies from the Persian Gulf would be further diminished by a drone attack on a critical pipeline in Saudi Arabia.
The Saudi Arabian Energy Ministry said it had closed its East-West Pipeline as a precautionary measure, but the shutdown came after reports that the Houthi militia had seized a strategic Red Sea island and a port city, which could further choke shipping in the area.
Already, most shipping in the Strait of Hormuz, the narrow waterway between the Persian Gulf and the Gulf of Oman, has been halted. The East-West Pipeline, which shuttles oil from the Persian Gulf to the Red Sea, has become an important workaround for Saudi oil exports.
Adding to the uncertainty, a planned meeting between Iran and several Gulf Arab countries it has attacked during the war was indefinitely postponed on Sunday.
Oil prices rise.
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The price of Brent crude, the global benchmark for oil, jumped more than 4 percent on Monday, nearing $110 a barrel. The cost of this type of crude has risen 50 percent since the start of the war.
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West Texas Intermediate crude, the U.S. benchmark, rose to nearly $104 a barrel.
Traffic through the Strait of Hormuz remains throttled.
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Ship operators continued to hold off on sending ships into and out of the Persian Gulf. On Sunday, 14 ships passed through the Strait of Hormuz, twice the number the day before, according to Kpler, a ship tracking company. Before the war, about 130 ships a day passed through the vital waterway, which carried one-fifth of the world’s oil.
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On Sunday, a ship was hit while transiting the strait, according to the U.K. Maritime Trade Operations agency. Marisks, a maritime risk firm, said that one crew member remained missing from the ship, which was struck while in Omani territorial waters.
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Conditions in the strait are “escalating,” said Ana Subasic, a trade risk analyst at Kpler. “Now it’s a question of is this something that escalates further, or is this a cycle to bring it back to the negotiating table.”
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The rates charged by operators of crude tankers have reached record highs, driven up by disruptions in the Middle East, according to Clarksons, a ship broker.
Stocks are pulled down by tech companies.
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The S&P 500 edged lower when stocks resume trading in the United States on Monday. Technology stocks fared the worst: The tech-heavy Nasdaq 100 fell more than 1 percent, after a chorus of senior executives at A.I. companies over the weekend called for slowing down the pace of development of the technology.
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Stocks in Asia mostly fell. The Nikkei 225 declined 0.8 percent, while stocks in mainland China also dropped. The worst performers were in South Korea, where the KOSPI index declined 3.3 percent.
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In Europe, the Stoxx 600, a broad index that tracks the region’s largest companies, was down slightly.
Bond yields hit 5 percent.
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The yield on the 10-year Treasury bond climbed above 5 percent on Monday, the highest level in three years, as inflation worries mount.
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Yields have been pushed higher by concerns over higher energy prices caused by the war in Iran, as well as increased borrowing by governments and spending on artificial intelligence infrastructure.
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The 10-year Treasury yield influences consumer borrowing like mortgages and auto loans. The average 30-year, fixed-rate mortgage ticked up to 6.76 percent last week.
Gasoline prices tick higher.
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U.S. gasoline prices rose to a national average of $4.32 a gallon on Monday, according to the AAA motor club. Prices for a gallon of regular gas are now 45 percent higher than they were before the war began.
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Gas prices don’t move in lock step with crude, usually trailing increases or drops by a few days.
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The average price of diesel continues to rise. It was $6.23 a gallon on Monday, up 66 percent since the start of the war.
What they are saying: Fuel markets ‘scream tightness.’
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“The recent escalation poses risks to our forecast, pushing us closer to our more pessimistic scenario,” analysts at ING wrote in a research note, adding that they had estimated that the average price of Brent crude would be $80 a barrel in the fourth quarter, although the situation remains “fluid” as shippers continue to move oil through the strait.
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The market for refined crude oil products, like diesel fuel and heating oil, continues to “scream tightness,” the analysts wrote. Ukraine’s attacks on refineries in Russia have prompted Moscow to ban exports. “This has only tightened global markets, following Persian Gulf disruptions,” the analysts added.
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