Oil prices surged on Monday well above $110 a barrel, in a sign of growing concern that the war in the Middle East will continue to take a toll on energy supplies.
It was the first time in almost four years that the global oil benchmark, known as Brent, cost more than $100 a barrel. Oil is now about 50 percent more expensive than it was before the United States and Israel began attacking Iran on Feb. 28.
In Asia, where economies are heavily dependent on imported oil from the Middle East, stocks tumbled broadly, falling 6 percent in South Korea and 4 to 5 percent in Japan.
Oil rose as high as $115 to $120 a barrel. The price came down below $110 a barrel after reports that governments were taking steps to ease concerns about tightening supplies of oil.
President Trump, who campaigned partly on lowering the cost of energy, said in a post on Truth Social on Sunday described the higher oil prices as “short term” and said they were “a very small price to pay for U.S.A., and World, Safety and Peace.”
The huge jump in oil prices suggests that traders are increasingly worried about being able to access oil and natural gas from the Persian Gulf. The Strait of Hormuz, a waterway on Iran’s southern coast, has been all but closed for more than a week, preventing fuel produced in the region from reaching overseas markets. One-fifth of the world’s oil and substantial amounts of natural gas normally move through the strait each day.
With little sign that shipping will soon be able to return to normal, higher oil prices will continue to drive up prices at the pump at a time when many Americans are worried about the economy. As of Sunday, the price of a gallon of regular gasoline had already climbed about 16 percent since the war started, to a national average of $3.45, according to the AAA motor club. Diesel prices had risen at a faster clip of around 22 percent.
Natural gas, which is used to heat homes and generate electricity, has also become more expensive, particularly in Europe and in Asia, which depend heavily on imported fuel. Natural gas markets are more regional than oil markets, meaning that the United States, as the world’s top natural gas producer, has been comparatively insulated.
Earlier on Sunday, Energy Secretary Chris Wright sought to play down the risk that energy prices would remain high for a long time.
“You’re seeing a little bit of fear premium in the marketplace, but the world is not short of oil today or natural gas,” Mr. Wright told CNN. He said he expected shipping through the strait to be disrupted for weeks in the worst-case scenario, not months.
Mr. Trump said last week that the U.S. Navy might escort tankers through the Strait of Hormuz, but Mr. Wright said U.S. forces were focused on limiting Iran’s missile and drone capabilities.
The sudden increase in oil and gas prices has raised concerns about inflation. The Federal Reserve typically counters rising prices by keeping interest rates high, to slow the economy and the pace of inflation. But weak jobs data on Friday bolstered the case for a rate cut, setting up a tug of war over the path forward.
A measure of investors’ inflation expectations has risen sharply. Investors now expect inflation to rise to around 4.5 percent over the next 12 months, from a forecast of 2.3 percent at the start of the year.
That has helped push up government bond yields, which underpin borrowing costs for companies and consumers. The two-year Treasury yield, which is sensitive to changes in interest rate expectations, has risen roughly 0.2 percentage points since the war began, to 3.56 percent.
(New York Times)
