Key facts
- Oil prices rose about 3% on Monday due to attacks in the Red Sea and Gulf of Guinea.
- The Federal Reserve's FOMC meeting is scheduled for September 15-16.
- There is an 86.5% chance of a 25 bps Fed rate hike at the September meeting.
- Goldman Sachs and JPMorgan expect the Fed to raise interest rates by 25 basis points.
- Saudi Arabia suspended operations on its East-West oil pipeline, which can transport 7 million bpd.
- Discussions for a temporary shipping lane through the Strait of Hormuz were suspended.
Oil prices surged approximately 3% on Monday, driven by escalating threats to supply from attacks in the Red Sea and Gulf of Guinea, alongside the ongoing US-Iran conflict. Crude oil prices rose 2.32% to $102.376 a barrel, while Brent crude gained 2.52% to $107.251 a barrel.
The Houthis reportedly continued to spread their activity in the Red Sea region, taking control of the Greater and Lesser Hanish Islands, which boosts their proximity to a key shipping lane. The group also fired new missiles and drones at Saudi military targets, though Iran has denied its role in the latest combat in Yemen. South Korea condemned an attack against Saudi civilian and economic facilities.
The oil price rally comes ahead of the Federal Reserve's FOMC policy meeting on September 15-16. According to CME FedWatch data, there is an 86.5% chance of a 25 basis point rate hike, which would lift the federal funds target range to 3.75%-4.00%. Financial institutions Goldman Sachs and JPMorgan also anticipate a 25 basis point increase. These odds have increased following recent hot U.S. PPI inflation data.
Recent strikes have also impacted crude deliveries. Saudi Arabia suspended operations on its East-West oil pipeline, which has a capacity of approximately 7 million barrels per day, due to recent attacks. Asian refiners are seeking clarity on deliveries from Saudi Arabia's port of Yanbu. Additionally, discussions with Iran regarding a temporary shipping lane through the Strait of Hormuz have been suspended, with Iran blaming Saudi Arabia for Oman's decision. These new strikes in shipping lanes could further disrupt energy flows and contribute to crude price volatility.