Oil prices pushed closer to $100 a barrel, stoking expectations interest rates will stay higher for longer and keeping pressure on global markets.
The US benchmark oil price briefly surpassed $95 a barrel for the first time in more than a year and Brent traded near $97 after a drop in stockpiles at a major storage hub underscored a widening global deficit.
The potential feed-through to inflation kept the 10-year Treasury yield around 4.6 percent, the highest since 2007. The dollar was little changed after its longest run of gains in a year. In Europe, the Stoxx 600 slipped 0.4 percent and US futures posted modest declines.
“The combination of oil prices bursting and rising rates, that’s of course not good for stock markets,” said Arnaud Girod, head of economics and cross-asset strategy at Kepler Cheuvreux. “This needs to calm down. It’s a toxic cocktail.”
Hawkish commentary from central banks has dashed hopes for a pivot toward lower rates any time soon, making September the worst month for global stocks in a year and the weakest for global bonds since February.
At the same time, Neel Kashkari, Minneapolis Federal Reserve President, said a potential US government shutdown and the effects of the autoworker strike may slow the economy, requiring less aggressive moves from the central bank.
“If these downside scenarios hit the US economy, we might then have to do less with our monetary policy to bring inflation back down to 2 percent,” Kashkari said in an interview on CNN.
Fed Chair Jerome Powell and a handful of other central bank officials are set to speak later Thursday. Data due include US gross domestic product and initial jobless claims ahead of the personal consumption expenditures price on Friday, the Fed’s preferred inflation gauge.
Global stocks also face the risk of further selling linked to a large options position held by a JPMorgan Chase & Co. equity fund. Tens of thousands of protective put contracts held by the fund will expire Friday at a strike price not far below the current level of the S&P 500, creating the potential for market dislocations.
In China, mainland shares edged lower ahead of an extended break for onshore markets, which will close Friday before reopening October 9. Chinese developers extended losses after falling to levels not seen since 2011 on Wednesday. Trading in China Evergrande Group was suspended in Hong Kong and bondholders of Country Garden Holdings Co Ltd said they had yet to be paid a coupon due Wednesday.
Meanwhile, West Texas Intermediate briefly popped above the threshold after jumping 3.6 percent on Wednesday, its biggest gain since early May. Inventories at Cushing, Oklahoma—the delivery point for the US benchmark—dropped just below 22 million barrels, the lowest since July 2022 and close to operational minimums.
“My fear in this market is we have de-stocked so much inventory,” Amrita Sen, co-founder and head of research at consultant Energy Aspects, told Bloomberg TV. “Right now, what’s going on in the US—Cushing is dry.”
Overall US crude stockpiles fell more than expected, according to official data released Wednesday, providing evidence of how rapidly the market is tightening due to supply cuts from Saudi Arabia and Russia. WTI has jumped by around a third since the end of June, and is on track for the biggest quarterly gain since early 2022, fueling inflation and causing fresh headaches for central banks.
Earlier this month, Opec forecast a deficit of as much as 3 million barrels a day of crude in the fourth quarter. With demand in the US and China proving resilient, many in the market now see $100 oil as inevitable, even as the dollar rallies and worries about high global interest rates persist.
“It’s only a matter of time before Brent breaks $100 a barrel,” said Warren Patterson, head of commodities strategy at ING Groep NV. “However, we believe any breakout will be relatively short-lived, given the growing pressure that will likely be put on Opec+ to ease supply cuts.”
The physical tightness is being reflected in oil’s futures curve. WTI’s prompt spread has surged to $2.44 a barrel in the bullish backwardation structure from just 61 cents in the middle of last week. Options trading is also showing concerns about bigger price swings.
Stockpiles at Cushing have dropped for seven straight weeks and many traders consider them to already be at the lowest levels that allow the tanks to operate normally. Last-minute supplies from the hub are becoming increasingly expensive and American crude is getting too pricey for overseas buyers.
Nevertheless, demand appears to be holding up despite the higher prices. Global consumption of transport fuels picked up last week, lifted by Chinese trucking activity and an increase in the country’s international travel ahead of the Golden Week holiday, JPMorgan Chase & Co. said. With assistance from Richard Henderson/Bloomberg