Oil Nears $100 as US & Iran Strikes Continue

Brent crude traded above $99 a barrel in early Wednesday trading on 9 September, its highest in nearly seven weeks, after United States Central Command (CENTCOM) destroyed five Iranian crude carriers and Iran's Islamic Revolutionary Guard Corps (IRGC) fired ballistic missiles at a US base in Jordan. The August US Consumer Price Index (CPI) is scheduled for Friday, 11 September. 

Six months into the conflict, the pattern has changed. Earlier phases moved the price through what might happen to shipping. This one is moving it through vessels already destroyed, and through a stated Iranian intention to police the water rather than simply close it. 

TL;DR

• CENTCOM destroyed five Iranian crude carriers on Tuesday, 8 September, four in the Gulf of Oman and one near Kharg Island, the loading point for roughly 90% of Iran's crude shipments.

• Iran responded with ballistic missiles at the Al Azraq base in Jordan, while Houthi forces attacked energy facilities in southern Saudi Arabia, wounding 73 people and temporarily halting operations.

What Happened?

CENTCOM said it destroyed five Iranian crude carriers on Tuesday, 8 September. Four were struck in the Gulf of Oman, named as the Kaviz, Charminar, Horizon 1 and Riesco, and a fifth, the Derya, was hit near Kharg Island. CENTCOM said the vessels were part of a multibillion-dollar shadow network that funds the IRGC and its regional proxies. The action followed a separate strike on 5 September, when three Iranian carriers were hit after the IRGC launched ballistic missiles towards two US Navy warships. It is the sixth month of a conflict in the Middle East that has repeatedly reset the energy market. 

Iran responded the same day. Jordan's Armed Forces said the country's air defences engaged 20 ballistic missiles aimed at US forces at the Al Azraq base, destroying 18, with two falling in unpopulated areas. The IRGC separately claimed it had struck the destroyers DDG-119 and DDG-53 and said its naval forces had targeted two American vessels and eight tankers. Neither the IRGC's account of damage to US vessels nor the full CENTCOM tally has been independently confirmed.

Moreover, a third front opened in southern Saudi Arabia. Houthi forces attacked Abha, Jazan, Najran and Khamis Mushait early on Tuesday, wounding 73 people. Saudi Arabia's Energy Ministry confirmed fires at multiple sites and said operations were temporarily halted. Brigadier General Yahya Saree, the group's military spokesman, said dozens of ballistic missiles and drones had been fired at oil and economic facilities and at an air base, in response to Saudi operations in Yemen.

The Physical Picture Behind Oil Price 

Brent traded at 99.33 in overnight trading into Wednesday, a rise of 1.4%  against the previous close. West Texas Intermediate for October delivery was quoted at 94.34, up 1.4% against the previous close, its sixth consecutive session of gains and the longest such run since March. Brent has risen roughly 12.8% over the past month and about 46.6% over the past year.

The tanker count explains the direction better than the headlines do. Roughly six commodity vessels transited the Strait of Hormuz in a single day against a ten-day average near 12, on preliminary shipping data. The strait normally carries around one-fifth of global oil consumption. It has been effectively shut to commercial traffic since fighting resumed in July, which undid the June ceasefire that had included reopening it. (Source: AOL)

Kharg Island matters more than its size suggests. It is the loading point for roughly 90% of Iran's crude shipments, so a strike near the terminal reaches export capacity rather than a single cargo.

Iran's Exclusion Zone Changes the Insurance Question

Mohsen Rezaei, secretary of Iran's Supreme National Security Council, said on state television that Tehran would declare a new exclusion zone in the Persian Gulf, extending from the perimeter of the existing US naval blockade around Iranian ports into the shipping lane itself. Vessels entering the zone intending to transit the Strait of Hormuz would be added to Iran's sanctions list. Tehran also urged tanker crews near Kuwaiti and Bahraini ports to abandon their vessels.

Iran and Oman have separately been reported as discussing a proposed corridor through the strait, with vessels coordinating with Tehran to enter a restricted maritime zone. That has been described as discussed rather than agreed, and it sits alongside an exclusion-zone announcement pointing the other way.

Was the Red Sea meant to be the alternative?

Saudi Arabia's response to a closed Hormuz has been to reroute barrels westward for export through the Red Sea. Tuesday's attacks reached exactly that infrastructure. The Jazan refinery, one of the kingdom's largest at 400,000 barrels a day, was among the facilities targeted, and had already been hit in August.

Both routes are now under pressure at once, which removes the workaround rather than the primary channel. Stronger Chinese demand has meanwhile been lifting prices for African, Canadian and Latin American grades as refiners look further afield, a pattern sitting outside the usual OPEC+ supply calculus.

What Moved Alongside Oil

Equities did not follow crude. The S&P 500 closed Tuesday, 8 September, at 7,673.52, a fall of 0.58%.

Volatility is the part that sits awkwardly. The CBOE Volatility Index (VIX) closed Tuesday at 15.72, up 2.75% from a previous close of 15.30, but down 3.79% across five sessions and well inside a 52-week range of 13.38 to 35.30. Crude is at a seven-week high.Elsewhere, the US 10-year Treasury yield was quoted at 4.8%. (Source: Finance Yahoo) 

Can the Energy Shock Reach Friday's Inflation Data?

July CPI rose 0.1% on the month and 3.4% on the year, while core CPI, which excludes food and energy, rose 0.2% and 2.5%. That gap of nearly a full percentage point is the whole argument. Headline inflation has been running hot on energy while the underlying measure has eased.

August's crude move largely post-dates the July data, so Friday's release is the first CPI report to carry a meaningful part of this escalation, and even then only partially, since fuel prices reach the index with a lag. The Producer Price Index (PPI) on Thursday offers an earlier read on pipeline pressure. July final demand PPI was unchanged on the month and 4.7% higher on the year.

The Federal Open Market Committee (FOMC) decides on 15 to 16 September with its target band at 3.50% to 3.75%, having held in July by nine votes to three, with Beth Hammack, Neel Kashkari and Lorie Logan each preferring a quarter-point increase. Governor Christopher Waller has argued publicly for patience, and market-implied odds for a move have swung near an even split. The committee is now in its pre-meeting blackout, so no official may frame Friday's number before it lands.

A supply-driven energy impulse is challenging for a policy rate, since interest rates act on demand rather than on tanker traffic. Which half of Friday's release carries the surprise may matter more than the headline itself.

What to Monitor This Week 

Thursday, 10 September

• The European Central Bank (ECB) announces its rate decision at 8:15am Eastern Time, with all 65 economists in a Reuters survey conducted between 31 August and 3 September pointing to a quarter-point rise in the deposit rate to 2.50%. President Christine Lagarde's press conference follows at 8:45am Eastern Time and the updated staff projections at 9:45am Eastern Time.

• The US Producer Price Index for August is published at 8:30am Eastern Time, with the previous reading unchanged on the month and 4.7% higher on the year. Weekly jobless claims arrive at the same time.

• The Energy Information Administration (EIA) releases its Weekly Petroleum Status Report at 12:00pm and 2:00pm Eastern Time, moved from its usual Wednesday slot because of the federal holiday on Monday, 7 September.

• The US Treasury auctions 30-year bonds, and Oracle and Adobe report earnings results for their fiscal quarters ending in August after the US close.

Friday, 11 September

• The US Consumer Price Index for August is published at 8:30am Eastern Time. July printed at 0.1% on the month and 3.4% on the year, with core at 0.2% and 2.5%.

• The UK Office for National Statistics publishes its monthly Gross Domestic Product (GDP) estimate for July at 7:00am London time. Monthly real GDP grew 0.3% in June.

• The University of Michigan publishes its preliminary September consumer sentiment reading at 10:00am Eastern Time, with the inflation-expectations series the part most sensitive to pump prices.

Potential Weekend Risk

Gulf developments have repeatedly landed outside market hours over the past ten days, and the weekend of 12 to 13 September runs into the FOMC meeting. 

Conclusion  

The price has moved a long way in six sessions. The tanker count has not moved with it, because it was already low. What changed this week is that vessels were destroyed rather than deterred, that the Red Sea alternative was attacked alongside the Gulf, and that Iran has proposed to work through insurance and sanctions rather than through blockade alone. Friday's inflation data will show only part of that, and the central bank meets the following week with the question still open.

*Past performance does not guarantee future results. The above is for marketing and general informational purposes only, and these are only projections and should not be taken as investment research, investment advice or a personal recommendation.