A seventh straight session above $100 for Brent crude followed the war's largest shipping exchange, with Washington sinking five Iranian tankers and Tehran claiming hits on 10 vessels. Swaps now price roughly 62% odds of a 25 basis point Fed increase on September 15-16, and Friday's August CPI reading is the deciding input.
Brent crude touched $101.94 a barrel on Thursday after Iran said it struck 10 vessels near the Strait of Hormuz and the US sank five Iranian oil tankers, the heaviest exchange of fire on shipping since the six-month war began. The benchmark settled back to $100.49, down 0.7% on the day, but has now held above $100 since September 3 — a gain of almost 30% from its early-August low.
"The tit-for-tat attacks suggest oil flows from the Persian Gulf are likely to remain disrupted for the foreseeable future," Daniel Hynes, senior commodity strategist at ANZ, said in a client note. Christopher Wong, FX strategist at OCBC, added that "uncertainty around actual volumes coming from the Strait of Hormuz and continued shipping disruptions are keeping physical markets tight and supporting a geopolitical risk premium in oil prices."
The physical market is tighter than the futures tape implies. Dated Brent, the benchmark against which roughly two-thirds of the world's crude is priced, has traded above $100 every session since September 3, according to LSEG data. Flows through Hormuz — the waterway that carried about a fifth of global oil and gas supply before the war — have collapsed to as low as 2 million barrels a day, down from 8 million to 9 million bpd in the week before fighting resumed on August 30, according to Claudio Galimberti, chief economist at consultancy Rystad Energy. The US Energy Information Administration raised its oil price forecasts for this year and next on September 9, citing falling global stockpiles after the loss of Middle Eastern supply.
The refined-products market is absorbing the shock faster than crude. The average US retail diesel price hit a record above $5.94 a gallon on Wednesday. That matters more for the inflation print than the headline crude number, because diesel feeds freight, agriculture and industrial input costs that show up in core goods with a one-to-two-month lag.
The August consumer price index, due Friday, is now the week's single largest risk event. Interest-rate swaps imply roughly 62% odds of a 25 basis point increase at the September 15-16 Federal Open Market Committee meeting, up from about 49% before August payrolls came in at 162,000 — nearly triple the roughly 53,000 consensus estimate. Fed Governor Christopher Waller said last week that the next move could hinge directly on the inflation reading.
The base effects are unforgiving. July CPI ran at 3.4% year over year, with the energy component up 14.7% and gasoline up 24.6%, while producer prices rose 4.7% with energy inputs up 18.2%. Oil has climbed further since that data was collected, which means the July energy impulse is still working through the pipeline rather than fading.
"If the CPI data comes in hot, a September hike is almost certain and would support a stronger dollar; if it comes in cool, it reinforces expectations of a pause and the dollar faces downside risk," Elias Haddad, senior markets strategist at Brown Brothers Harriman & Co., said.
The last time the Fed faced an energy-led inflation impulse of this size was the 2022 campaign, when the fed funds rate rose from near zero to 5.25-5.50% between March 2022 and August 2023 and the S&P 500 drew down more than 20%. The Shiller CAPE ratio now sits at 41.2, a level exceeded only at the peak of the dot-com bubble in 2000, leaving little valuation cushion if yields climb again.
The 10-year Treasury yield held near 4.85%, close to the three-year high set Wednesday, after the Treasury's buyback of up to $6 billion in long-dated bonds came in below what some investors expected and failed to pull yields lower. The 2-year yield has already risen to 4.37%, reflecting the repricing of the September meeting. Germany's 10-year Bund yield climbed 8 basis points to 3.44% as the European Central Bank prepared to deliver its own 25 basis point increase on Thursday.
The dollar absorbed the cross-currents poorly. The Bloomberg Dollar Spot Index slipped 0.1% to its weakest level since early May, a four-month low, as traders weighed a Fed that may hike into a slowing economy against an ECB that is still tightening. The yen was little changed at 153.59 per dollar.
The transmission into risk assets was visible across Asia. The MSCI Asia-Pacific index fell 0.6%, with Australian equities leading declines. Bitcoin dropped 0.8% to $78,299, and the broader crypto market moved with it — the cleanest read on how a high-oil, high-yield combination drains liquidity from speculative positioning. Spot gold rose 0.7% to $4,429.02 an ounce, the traditional hedge bid appearing alongside the dollar's weakness rather than in place of it.
The next 48 hours resolve the near-term path. A core CPI print above 0.3% month over month would make a September hike close to certain, push the 10-year toward its three-year high and extend pressure on Bitcoin and long-duration equities. A reading below 0.1% would reopen the case for a hold and weaken the dollar further. Either way, the oil risk premium is unlikely to disappear before the FOMC meets: the Revolutionary Guards have said they will hit 20 targets if attacked two or three more times, and Iran has threatened a new off-limits zone extending as far as Chabahar, near the Pakistan border.
This article is for informational purposes only and does not constitute investment advice.
