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Oil prices have rebounded sharply after Friday’s pullback, with renewed Hormuz uncertainty, elevated inflation and rising rate expectations keeping the outlook increasingly fragile.
Oil Prices Rebound After Friday’s Pullback
Oil prices surged last week as escalating Middle East tensions and rising bond yields increased concerns about supply disruptions and persistent inflation. WTI crude climbed as high as $104.50 late in the week, while Brent crude approached $110 before both benchmarks reversed sharply on Friday.
WTI slipped back below $100, while Brent dropped below $105 as traders took profits and risk sentiment briefly improved. However, the recovery has quickly returned following weekend developments surrounding the Strait of Hormuz.
WTI Rebounds Off the 50 SMA
WTI crude has reached its strongest levels since early June, with the latest move taking the price toward important technical resistance.
WTI crude has moved back toward $103 per barrel, while Brent has climbed above $108, highlighting how quickly geopolitical developments can shift the oil market.
Hormuz Uncertainty Keeps Supply Risks Elevated
Iran’s planned meeting with Gulf Arab states in Oman concerning the Strait of Hormuz was postponed at the request of regional countries, according to reports citing Iranian and Omani officials.
The delay adds another layer of uncertainty to a market already carrying a substantial geopolitical premium. The Strait of Hormuz remains critical to global energy flows, and continued disruption or uncertainty around shipping could keep crude prices elevated.
Traders had been looking toward the Oman meeting as a possible step toward easing shipping restrictions and establishing a temporary corridor. Its postponement therefore offers little relief and instead risks reinforcing concerns about prolonged supply disruptions.
Higher Oil Prices Could Complicate Inflation
The latest oil surge is particularly concerning because it comes as inflation remains above the Federal Reserve’s target.
August CPI increased 0.4% month over month, accelerating from July’s 0.1% gain, while annual headline inflation remained at 3.4%. Core CPI rose 0.3% during the month and 2.4% from a year earlier.
Gasoline prices increased 3.9% in August and accounted for more than one-third of the monthly headline increase. While the inflation report was not an outright shock, it provided limited evidence that price pressures are moving decisively toward the Fed’s 2% target.
Fed Decision Could Add Another Source of Volatility
The Federal Reserve’s Wednesday meeting is now a major catalyst for financial markets. Rate-hike expectations have risen sharply following the latest inflation data, with markets pricing a high probability of another 25-basis-point increase.
Higher oil prices could make the Fed’s job even more difficult by adding fresh pressure to headline inflation. At the same time, elevated Treasury yields increase financial conditions for consumers and businesses.
For oil markets, the combination creates a difficult setup: stronger crude prices may support energy producers, but they could also increase inflation concerns, weaken economic growth expectations and encourage tighter monetary policy.
With WTI back above $100 and Brent above $108, the next move may depend heavily on developments around Hormuz and how aggressively the Fed responds to renewed inflation pressure.
Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst.
Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank’s local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.