Brent crude retreats below $100 as $120 threshold looms for de-escalation

Brent crude's retreat below $100 a barrel offers only temporary relief as Houthi attacks on Saudi tankers and the US naval blockade of the Strait of Hormuz keep supply risks elevated, with ING analysts flagging $120 as the de-escalation trigger.

"The key question is at what price level pressure begins to build on the Trump administration to return to the negotiating table," analysts at ING said in a note. Based on previous price spikes during the early stages of the conflict, they said pressure to de-escalate would rise significantly if Brent approaches $120 a barrel.

Brent crude fell 1.8 percent to $98.92 a barrel in early European trading Friday, while West Texas Intermediate slipped 1.75 percent to $90.62. The pullback followed a 7 percent surge Thursday that pushed Brent to a two-month high of $102 a barrel after Iran-aligned Houthi militants claimed to have struck two Saudi oil tankers in the Red Sea. The 10-year US Treasury yield edged down to 4.701 percent from an 18-month high of 4.714 percent reached Thursday, while the dollar index eased 0.1 percent to 101.384.

The oil shock has already upended the inflation outlook just as it had begun to decelerate. Markets now price a 33 percent probability the Federal Reserve will raise rates by 25 basis points at its July 29 meeting, up from 12 percent a week ago, according to CME Group data. A full rate hike is priced in by September. The average US gasoline price has climbed to $4.09 a gallon from $3.93 a month ago, according to AAA.

The escalation threatens two of the world's busiest shipping corridors simultaneously. The US resumed its naval blockade of the Strait of Hormuz last week after Iran fired upon oil tankers there, reversing a key commitment made as part of a preliminary ceasefire agreement. The strait facilitates transport of about one-fifth of global oil supply. Saudi Arabia had relied on an alternative pipeline route across the country to the Red Sea, but the reported Houthi attack on Wednesday now risks choking off that waterway as well.

President Donald Trump threatened "major military punishment" against the Houthis and their Iranian backers if attacks on shipping continue. The US military struck Iran late Thursday and early Friday in the 13th consecutive night of attacks, according to reports.

Stocks Sink as Tech Earnings Compound Oil Jitters

The S&P 500 fell 1.2 percent to 7,408.30, while the Dow Jones Industrial Average dropped 506 points to 51,711.65 and the Nasdaq composite sank 2.2 percent to 25,137.69. Tesla tumbled 14.5 percent after reporting its first cash burn in two years as it ramped up AI infrastructure spending, while Alphabet fell 7.1 percent even after beating profit and revenue estimates, as investors focused on the Google parent's rising capital expenditure. Asian markets followed suit Friday, with Japan's Nikkei sliding 2.7 percent, South Korea's Kospi plunging 5.7 percent and Hong Kong's Hang Seng Index falling 1.1 percent.

Rate Hike Bets Resurface Across Markets

The European Central Bank held its main interest rates steady at its meeting Thursday, but markets now price a 70 percent probability of a September rate hike. The 30-year US Treasury yield held at 5.17 percent, near a 19-year peak, while benchmark European borrowing costs climbed to levels last seen in 2011. The last time oil prices sustained a move above $100 for more than a week was in May, before the Iran war ceasefire briefly pushed Brent below $72 a barrel. That ceasefire has now collapsed, and the inflation relief it offered has reversed.

For Iran, the more pressing issue is not the level of oil prices but how long the country can withstand a sharp drop in oil revenues under the US blockade, ING analysts said. For global markets, the path forward hinges on whether diplomatic channels reopen before Brent tests the $120 level that could force Washington's hand — or whether continued escalation pushes crude even higher, deepening the inflation shock and tightening financial conditions worldwide.

This article is for informational purposes only and does not constitute investment advice.