Oil price climbs above $90 as Iran says US diplomacy ‘isn’t possible’
The price of oil is creeping higher after the US launched strikes at Iranian rocket launchers that were reportedly preparing to lay mines in the Strait of Hormuz.
Brent crude – the international benchmark for oil prices – climbed towards $91 per barrel after strikes from the US marked the first exchange of fire in more than a month.
Over the weekend, Iran’s foreign minister Abbas Araghchi said: “Putting diplomacy back on track isn’t possible.
“It hinges on the US understanding one simple fact: pressure doesn’t work.”
Achilleas Georgolopoulos, senior market analyst at Trading Point, said fresh military operations were pushing the oil price higher. But he added the rally appeared to “lack [the] momentum” needed to push it above previous highs seen during the conflict.
“While no one is surprised by these events, expectations for progress in the US-Oman-Iran negotiations have clearly taken another hit,” he added.
Conflict around the Strait of Hormuz has continued to hit shipping volumes, with vessels avoiding the narrow waterway while it is still deemed dangerous.
Analysis from Goldman Sachs forecasts that total exports of crude and oil products from the Middle East have risen to 15m to 16m a day. The level still remains up to 8m barrels below pre-conflict levels, but well above the 5m to 6m barrels that were flowing through a day in March at the peak of the conflict.
High energy prices keeps inflation fears elevated
The renewed pressure on the oil market follows Federal Reserve chair Kevin Warsh suggesting the central bank was prepared to act if inflationary pressures tick up.
“Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That’s our job… our mandate… and our charge to keep”, Warsh said in his Jackson Hole speech on Friday.
In the UK, inflation leaped to 2.9 per cent in July after the reset of the energy price cap coincided with a spike in oil and gas prices.
Energy watchdog Ofgem confirmed households were in line for another squeeze from bills after its price cap was set to rise to a three-year high.
The regulator said the default tariff for consumers across Britain would increase four per cent to £1,723 for the final quarter of the year. The rise marks a £60 per year jump, or £5 per month. It pointed to surging oil and gas prices as a result of the conflict in the Middle East.
The price cap, which acts as a buffer for some 22m British households on default tariffs, is tipped to rise again in January as the price of oil remains elevated. The move will mount pressure on Prime Minister Andy Burnham, who has sought to give families “breathing room” in the cost of living.