As crude prices continue to rise, markets are growing increasingly worried about an interest rate hike from the Federal Reserve.
According to data from the CME FedWatch tool, markets see a 35.8% probability for a 25 basis point interest rate hike in the July meeting, up from 11.8% a week ago.
Major oil exchange-traded funds are trading significantly higher amid the rise in crude prices.
Oil prices surged as escalating tensions in the Middle East fuel concerns over potential disruptions to global energy supplies, reigniting worries about inflation and reinforcing expectations that interest rates could remain higher for longer.
At the time of writing, Brent crude futures expiring in September continued to trade above $100 a barrel, breaching that level for the first time since May. Meanwhile, WTI crude futures expiring in September were trading at $91.74 per barrel.
Mohamed El-Erian, chief economic adviser at Allianz, noted in a post on X, “It’s one of those market days where the vast majority of asset classes are down, including stocks, bonds, crypto, and gold. The blame game points to the one asset class that is notably higher today: energy. And for good reason — $100 Brent crude complicates the economic, corporate, and policy outlooks.”
Interest Rate Hike Concerns Are Rising
As crude prices continue to rise, markets are growing increasingly worried about an interest rate hike from the Federal Reserve.
“Brent crude oil prices are now officially trading above $100/barrel up +42% in 20 days. Inflation expectations and interest rates are rising sharply again,” The Kobeissi Letter said in a post on X.
According to data from the CME FedWatch tool, markets see a 35.8% probability for a 25 basis point interest rate hike in the July meeting, up from 11.8% a week ago.
In September, markets put the probability of a hike at 81.4%, considerably higher than 52.4% a week ago.
Meanwhile, Wall Street financier Steve Rattner noted in an X post that the rising oil and gas prices are “brutal for inflation and Americans’ pocketbooks.” He added that there seems to be “no end in sight for their fundamental cause: Trump’s war of choice in Iran.”
Middle East Considers Oil Route Alternatives
Before the conflict with Iran, about 15 million barrels of oil from the Persian Gulf passed through the Strait of Hormuz each day. Amid the prolonged disruption of the critical waterway, concerns over energy supply are mounting.