Oil prices jump further as hopes for Hormuz deal fade

Oil prices have rallied significantly, jumping around 10 percent over the past week, as prospects for reopening the crucial Strait of Hormuz appear to diminish. This surge fuels fresh inflation fears and strengthens expectations for at least one more US interest rate hike this year.

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In the absence of any positive headlines on negotiations to reopen the strait, pressure on oil prices has been upward.

The diplomatic landscape has become more complex following US President Donald Trump's announcement that he would seek conflict compensation from Iran as part of any peace negotiations. This demand, citing decades of alleged Iranian-backed attacks, directly counters Tehran's precondition for US war reparations. Trump's remarks follow a previous statement suggesting a less confrontational approach, indicating a preference for mounting economic pressure over further military action.

However, this latest exchange risks pushing a swift resolution further out of reach. Both major crude contracts saw gains of around five percent on Monday and rose more than one percent on Tuesday. Analysts note that in the absence of positive negotiation news regarding the Strait of Hormuz, upward pressure on oil prices is expected to continue.

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In effect, both sides are trying to weaponise the oil barrel without firing another shot. Washington is trying to choke Iran’s ability to get its crude out, while Tehran is squeezing the artery through which everybody else’s crude gets through. It is quite the game of chicken.

The potential for sustained high oil prices has reignited concerns about inflation. While a recent unexpected loss of US jobs had eased fears of a Federal Reserve rate hike, a spike in price pressures could compel the bank to act. Traders are now closely watching for the release of consumer price data on Wednesday, which is expected to significantly influence the Fed's decision on its next monetary policy move.

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I would say in general, one 25-basis-point move probably doesn’t do a whole lot for the economy. So it’s probably some number of (movements). But I don’t want to prejudge what that number is going to be.