NEW YORK (AP) — Oil prices shot past $100 a barrel Wednesday as fighting between the U.S. and Iran escalated, threatening to increase costs for consumers and businesses worldwide.
Brent crude, the international standard, climbed into triple digits after attacks on oil facilities and ships in the Middle East that could further debilitate an already weakened supply chain — and continued to hover just above the $100 threshold as of midday trading in the U.S.
That last time prices were that high was in July.
The latest developments in the war, both prospects of peace and renewed hostilities, have caused market whiplash before. Oil returning to the $100 mark raises concern because experts have warned that a prolonged period of steep prices would worsen the now over six-month-long conflict’s economic fallout. Crude is the main ingredient for everyday fuel like gasoline and diesel — which are also seeing a renewed spike in prices — and higher energy costs overall trickle down to just about every part of the supply chain, from groceries to clothing, cosmetics and more.
“Brent breaking above $100 is a major psychological milestone for markets, but the bigger concern is what this means for inflation," Lukman Otunuga, market research head at global broker FXTM, said in Wednesday comments.
Here's what we know.
Crude oil prices shot up shortly after Israel and the U.S. launched their war with Iran in late February. Much of that is because the fighting halted most shipping through the Strait of Hormuz, a narrow waterway where roughly a fifth of the world’s oil supply passed before the conflict.
Prices have fluctuated considerably over the last six months. Brent surged in the early days of the war — and at one point briefly reached nearly $120 a barrel. Volatility at times resulted in stark day-by-day price swings, but the benchmark settled above the $100 mark for a full month between late April and early May.
Oil costs cooled in the early summer, plunging closer to prewar levels (roughly $70 a barrel) during hopes for peace and a plan to move oil safely out of the Persian Gulf. But new attacks soon piled up and talks crumbled, leading oil to renew its climb, albeit still with some volatility. The last time Brent settled above $100 was for a single day in late July. Prices have stayed above $90 since the end of August.
This week's jump follows the latest escalation: the U.S. military reported striking five Iranian tankers on Tuesday, in response to attempted missile attacks on a Navy warship and after attacks by an Iranian-backed Houthi rebel group ignited fires at oil facilities in Saudi Arabia.
Recent stepped-up attacks by Yemen’s Houthis could constrain global oil supplies even more because they targeted an alternative shipping route that Saudi Arabia has relied on to transport oil during the war.
Higher energy costs have already weighed on consumers, businesses and national economies this year.
Among some of the most immediate consequences of steeper oil prices is more expensive trips to the pump. Drivers are feeling the pain each time they fill up their tanks with gasoline. And rising diesel prices hike transportation costs for everyday goods hauled on trucks, trains and boats.
Countries in Asia and Africa — which rely more heavily on imports from the Middle East — have seen some of the starkest shocks over the course of the war.
In Nigeria, diesel prices are up more than 90% and gasoline prices have jumped nearly 58% since late February, according to the latest data from energy tracker Global Petrol Prices. Countries including Indonesia (diesel up 87% and gas up 38%) and Lebanon (diesel up 80% and gas up 46%) have also seen steep spikes.
In the U.S., the average price for a gallon of regular gasoline jumped to $4.22 Wednesday— up nearly 42% from the $2.98 seen before the war began, according to motor club AAA. Meanwhile, the price tag on American diesel keeps climbing to new records, setting yet another all-time high (without accounting for inflation) of $5.94 on average Wednesday per AAA, up nearly 58% from the start of the war.
More expensive diesel can have an outsized impact on consumers because it is used in shipping and production. Some businesses have already passed on costs to consumers in the form of added fees on online orders and packages in the mail. And shoppers may see more and more sticker shock trickle down to store shelves — particularly for perishable groceries and produce, which need to be restocked frequently, or even harvested using diesel-powered farm equipment.
Oil shocks don't stop there. Jet fuel has become so expensive that many airlines have cut flights while raising fares and fees. And more expensive oil could drive up costs for a long list of petroleum-derived products, from clothes to crayons — as well as natural gas needed for making chemical fertilizer, which is facing an additional supply squeeze from the war.
It can take time for all energy shocks to trickle through the supply chain — meaning that squeezes even from earlier in the war could carry impacts that still haven't been fully realized yet. And the return of $100 Brent may only add to those costs.
Otunuga, of FXTM, noted Wednesday that a big question boils down to how long the spike lasts — pointing to July's single day for Brent above the $100 mark, for example.
“This time feels different,” Otunuga wrote, pointing to rising tensions. He added that a solid close above $100 “confirms this isn’t just a headline spike” and potentially opens the door toward $110 — although there's still the possibility for momentum to fade.
Analysts at Bank of America also said this week that additional refinery outages in Russia, reduced refining activity elsewhere and sharply declining inventories have pushed diesel and gasoline prices sharply higher globally.
They increased their oil price forecast for the second half of the year to $83 a barrel “in light of more persistent disruptions to Hormuz,” but said they still expected shipping through the strait to gradually pick up. If attacks keep a chokehold on traffic, prices could reach $95 to $120 a barrel, while damage to major energy infrastructure could produce spikes of up to $150 a barrel, the analysts wrote.
Political ramifications could pile up in the meantime. The upcoming U.S. midterm elections are now just 8 weeks away.
“In our view, reaching a durable deal before the U.S. midterm elections is increasingly unlikely, and it could remain elusive even beyond that,” Bank of America analysts said in a Tuesday research note.
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AP Business Writer Rio Yamat contributed from Las Vegas. Grantham-Philips reported from Philadelphia.
