Key Takeaways
- Oil prices surged by more than 1% on Tuesday due to the ongoing conflict in Saudi Arabia and Iran.
- The conflict has disrupted global oil supplies and raised concerns about inflation.
- The Bank of Japan is expected to raise its interest rate by 25 basis points to signal further tightening.
The Situation Unfolds
Oil prices rose more than 1% on Tuesday as concerns over global supplies intensified after attacks disrupted Saudi Arabia’s East-West pipeline and planned talks between Gulf Arab states and Iran were postponed.
Brent crude futures gained $1.24, or 1.18%, to $106.93 a barrel at 0026 GMT, after rising 1% in the previous session. US West Texas Intermediate (WTI) crude futures climbed $1.29, or 1.24%, to $102.65 a barrel, following a 1.3% increase on Monday.
Attack on Saudi Military Base
Iran-backed Houthi forces in Yemen launched fresh attacks on Saudi Arabia on Monday, targeting the Khamis Mushait military airbase in the country’s south.
The Houthis said the missile and drone attack was carried out in retaliation for Saudi strikes in Yemen. The assault reportedly targeted aircraft hangars, radar systems, runways and ammunition depots.
Pipeline Disruption
The latest attack followed strikes on Friday that Riyadh blamed on Iran-backed fighters in Iraq. Those attacks disrupted Saudi Arabia’s East-West pipeline, which allows the kingdom to transport oil to the Red Sea and bypass the Strait of Hormuz.
Saudi Arabia uses the pipeline to reroute around four million barrels of oil per day to the port of Yanbu. The outage could remove as much as 4% of global oil supply from the market if operations are not restored, according to Saudi buyers and traders.
Shipping Concerns
Shipping concerns also deepened after commodity vessel traffic through the Strait of Hormuz fell to fewer than 10 transits a day over the weekend, compared with a 10-day average of 14.
The waterway carried nearly one-fifth of global oil supplies before the US-Israeli war on Iran began on February 28. Gulf Arab states also postponed planned discussions with Iran, adding to concerns that the regional conflict could widen and further disrupt energy shipments.
Inflation Concerns
The rise in oil prices added to inflation concerns and pushed benchmark 10-year US Treasury yields to 5% overnight—their highest level since October 2023. The yield later eased to 4.9895%.
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Global Market Reactions
Asian shares remained subdued as investors assessed Middle East tensions, higher oil prices and elevated bond yields ahead of key central bank meetings in the United States and Japan.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.12%, while South Korea’s benchmark declined 0.25%. Japan’s Nikkei edged up 0.19% after recovering from early losses.
Central Bank Meeting
The Bank of Japan is widely expected to raise its interest rate by 25 basis points to 1.25% at the end of its two-day meeting on Friday and signal further tightening.
Currency Markets
In currency markets, the dollar index rose 0.05% to 99.53. The dollar gained 0.17% against the yen to 154.61, while the euro slipped 0.03% to $1.1543. Spot gold fell 0.15% to $4,291.59 an ounce, while silver declined 0.31% to $63.03.
Oil prices rose more than 1% on Tuesday as concerns over global supplies intensified after attacks disrupted Saudi Arabia’s East-West pipeline and planned talks between Gulf Arab states and Iran were postponed. The outage could remove as much as 4% of global oil supply from the market if operations are not restored, according to Saudi buyers and traders. The Bank of Japan is widely expected to raise its interest rate by 25 basis points to 1.25% at the end of its two-day meeting on Friday and signal further tightening.Frequently Asked Questions
What caused the surge in oil prices?
How much of a global oil supply could be removed from the market if operations are not restored?
What is the expected interest rate increase by the Bank of Japan?
