Oil prices approached $100 a barrel on Tuesday, driven by heightened tensions in the Middle East and sparking concerns that escalating inflation could prompt the Federal Reserve to increase interest rates. Brent crude futures climbed 1.1% to $98.27, while West Texas Intermediate crude saw a 2% rise to $93.31.
The surge in oil prices follows reports from Saudi Arabia, the world's largest oil exporter, indicating disruptions at some facilities due to strikes from Iran-aligned Houthis. Officials confirmed that over 70 individuals were wounded and emergency services were working to contain fires resulting from the attacks.
Investors are closely monitoring upcoming inflation data, including the Producer Price Index on Thursday and the Consumer Price Index on Friday. This data will be the last inflation report Federal Reserve officials will review before their September 16 meeting, where a decision on interest rates will be made. The economic outlook and potential rate hikes are also seen as influential factors for the upcoming midterm elections.
In response to the attacks, Saudi Arabia has pledged retaliation. The situation is further complicated by recent U.S. military actions, including the destruction of three Iranian oil tankers on Saturday after Iran launched ballistic missiles at two U.S. Navy warships. Iran had previously threatened to disrupt maritime traffic through the Strait of Hormuz, a critical energy supply route in the Persian Gulf.
These geopolitical developments have also impacted financial markets. The Dow Jones Industrial Average fell approximately 641 points, or 1.2%, by mid-morning ET, with the S&P 500 and Nasdaq also experiencing declines. Conversely, shares in major oil companies like Exxon Mobil and Chevron saw increases of 1.3% and 2.1%, respectively, as traders anticipate higher profits due to rising oil prices.
The bond market also showed volatility, with the U.S. 10-year Treasury yield rising to 4.79%. Analysts at Goldman Sachs have warned that Middle East shipping disruptions could persist into 2027 and have raised their year-end forecasts for Brent and West Texas Intermediate crude prices. The bank's analysts anticipate that oil production will gradually recover in the latter half of 2027.
National average gasoline prices stood at $4.15 a gallon, unchanged from the previous day, which had marked a record high for Labor Day. Former President Trump posted on Truth Social, vowing that gas prices would drop significantly if his administration won an election, stating they would fall to $3 and eventually $2 a gallon "when we WIN the war with Iran."