Energy Crisis and Rising Fuel Prices: Military Conflict Drives Global Inflation and Oil Markets
Crude oil prices climbed to their highest levels in three months on Friday, posting strong weekly gains as supply disruptions and escalating military tensions in the Middle East continued to support the market.
Brent crude futures settled 76 cents, or 0.8%, higher at $92.68 a barrel, while US West Texas Intermediate (WTI) crude futures gained 18 cents, or 0.2%, to close at $91.48 a barrel.
Brent crude rose 7.6% for the week, while US crude gained nearly 10%, as oil supply routes in the Middle East remained disrupted amid the ongoing US military conflict with Iran. Both benchmarks reached their highest levels in around three months.
The rise in crude prices, combined with a much sharper increase in fuel costs, has pushed up inflation and government borrowing costs worldwide, intensifying concerns that global economic growth could slow without additional policy support.
Claudio Galimberti, chief economist at research firm Rystad Energy, said the sharp increase in diesel prices was affecting the entire economy.
“Every part of the economy is affected by the sharp rise in diesel prices,” Galimberti said. “This is one of the reasons US government bond yields are so high, as markets expect inflation to continue rising.”
Average diesel prices in the United States have reached their highest levels as supply disruptions linked to the military conflict involving Iran and Ukrainian attacks on Russian refineries have tightened fuel markets. According to data from the American Automobile Association (AAA), the average price of a gallon of diesel in the United States has now reached $5.85.
Diesel prices could rise further as inventories remain sharply depleted and agricultural states across the US enter their harvesting and planting seasons. Diesel is the primary fuel used by agricultural machinery. Heating oil futures, a closely related fuel benchmark, have also risen as winter approaches.
Citibank raised its forecast for the average Brent crude price in the third quarter to $86 per barrel from $80, saying that the reopening of the Strait of Hormuz was likely to take longer than previously expected.
Analysts at ANZ also raised their short-term Brent crude forecast to $95 per barrel, warning that prices could climb further if the conflict in the Middle East intensifies.
Tanker Traffic Remains Disrupted
The US government has claimed that Middle Eastern oil flows have returned to near-normal levels in recent weeks. However, analysts and tanker-tracking data suggest that oil shipments remain significantly disrupted.
Preliminary shipping data showed that only four commercial vessels passed through the Strait of Hormuz on Thursday, well below the 10-day average of around 15 vessels.
According to Reuters, Norbert Rücker, head of Next Generation Research at Julius Baer, said the oil market appeared to be entering a phase in which recurring military tensions and prolonged conflict were steadily adding a risk premium to prices.
“It appears that oil has entered a phase where the stalemate and recurring hostilities are repeatedly adding risk to prices,” Rücker said.