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Oil prices rise after fears of more violence in Gulf Oil prices rise after fears of more violence in Gulf
(about 2 hours later)
Oil prices surged on global markets as jumpy investors weighed the risk that tensions in Yemen could spiral into a wider Middle East conflict, choking off crude supplies.Oil prices surged on global markets as jumpy investors weighed the risk that tensions in Yemen could spiral into a wider Middle East conflict, choking off crude supplies.
The cost of a barrel of benchmark Brent crude rose more than 4% on Thursday, to $58.93, after reports emerged about Saudi-led air strikes on the Yemeni capital, Sana’a, and the southern port city of Aden – close to the key oil supply route through the Gulf of Aden and the Suez canal. A barrel of US West Texas intermediate jumped $2.17, to $51.37. The cost of a barrel of benchmark Brent crude rose more than 4% on Thursday, to $58.93 (£39.55), after reports emerged about Saudi-led air strikes on the Yemeni capital, Sana’a, and the southern port city of Aden – close to the key oil supply route through the Gulf of Aden and the Suez canal. A barrel of US West Texas intermediate jumped $2.17, to $51.37.
Meanwhile share prices sold off sharply in the City, as fears of political risk in the Gulf, together with Federal Reserve officials’ renewed insistence that they are gearing up for a rate rise, as well as the continuing problems with Greece’s finances, sent investors scurrying for safe haven assets. The price of gold rose 1%, to $1,206 an ounce. Meanwhile share prices sold off sharply in the City as fears of political risk in the Gulf, together with Federal Reserve officials’ renewed insistence that they are gearing up for a rate rise and the continuing problems with Greece’s finances, sent investors scurrying for safe-haven assets. The price of gold rose 1%, to $1,206 an ounce.
“The air strikes in Yemen have really created a risk-off mood,” said Rabobank strategist Philip Marey.“The air strikes in Yemen have really created a risk-off mood,” said Rabobank strategist Philip Marey.
Related: FTSE 100 falls nearly 1.5% as oil rises amid Middle East tensionsRelated: FTSE 100 falls nearly 1.5% as oil rises amid Middle East tensions
The selloff began on Wall Street late on Wednesday, and was echoed in Asian markets overnight. In Londonon Thursday, the FTSE 100 index of leading shares closed down 1.4% at 6,895.33 points — down 2.4% since it hit a record high on Tuesday. On Wall Street, stocks initially plunged, but later recovered their losses, while European markets were also weaker.The selloff began on Wall Street late on Wednesday, and was echoed in Asian markets overnight. In Londonon Thursday, the FTSE 100 index of leading shares closed down 1.4% at 6,895.33 points — down 2.4% since it hit a record high on Tuesday. On Wall Street, stocks initially plunged, but later recovered their losses, while European markets were also weaker.
The latest bout of market turmoil came as the Bank of England warned that markets could suddenly seize up, posing a threat to financial stability.The latest bout of market turmoil came as the Bank of England warned that markets could suddenly seize up, posing a threat to financial stability.
As the Bank’s financial policy committee – established to monitor risks in the system and chaired by bank governor Mark Carney - published its quarterly update on its assessment of the markets, it identified the crisis in Greece, a slowdown in China and the eurozone as the main international risks to the financial system. As the Bank’s financial policy committee (FPC) – established to monitor risks in the system and chaired by bank governor Mark Carney – published its quarterly update on its assessment of the markets, it identified the crisis in Greece, a slowdown in China and the eurozone as the main international risks to the financial system.
The FPC said that its annual stress tests on banks, details of which will be published on Monday, would focus on such international risks. Last year’s stress tests were more focused on the threat of a slowdown in the UK economy and a collapse in house prices.The FPC said that its annual stress tests on banks, details of which will be published on Monday, would focus on such international risks. Last year’s stress tests were more focused on the threat of a slowdown in the UK economy and a collapse in house prices.
In its statement following its meeting on 24 March, the FPC said: “International and geopolitical risks to financial stability in the United Kingdom persist. Despite recent encouraging signs, the risk of a low nominal growth in the euro area persists.In its statement following its meeting on 24 March, the FPC said: “International and geopolitical risks to financial stability in the United Kingdom persist. Despite recent encouraging signs, the risk of a low nominal growth in the euro area persists.
“There are also risks associated with a further slowdown in China and to some emerging economies as the stance of monetary policy begins to diverge globally. There also remain significant risks in relation to Greece and its financing needs, including in the near term.“There are also risks associated with a further slowdown in China and to some emerging economies as the stance of monetary policy begins to diverge globally. There also remain significant risks in relation to Greece and its financing needs, including in the near term.
Related: Bank of England warns of danger to markets from Greece and ChinaRelated: Bank of England warns of danger to markets from Greece and China
“Any of these risks could trigger abrupt shifts in global risk appetite that in turn might lead to a sudden reappraisal of underlying vulnerabilities in highly indebted economies, or sharp adjustments in financial markets,” the Bank said.“Any of these risks could trigger abrupt shifts in global risk appetite that in turn might lead to a sudden reappraisal of underlying vulnerabilities in highly indebted economies, or sharp adjustments in financial markets,” the Bank said.
Growing expectations of tighter US monetary policy have trimmed investors’ optimism about the outlook for the world’s largest economy in recent days, and James Bullard, of the St Louis federal reserve, became the latest policymaker to reiterate the argument that interest rates will soon need to rise.Growing expectations of tighter US monetary policy have trimmed investors’ optimism about the outlook for the world’s largest economy in recent days, and James Bullard, of the St Louis federal reserve, became the latest policymaker to reiterate the argument that interest rates will soon need to rise.
Speaking in Germany, Bullard said: “Now may be a good time to begin normalising US monetary policy so that it is set appropriately for an improving economy over the next two years.”Speaking in Germany, Bullard said: “Now may be a good time to begin normalising US monetary policy so that it is set appropriately for an improving economy over the next two years.”
Wolfgang Schäuble, the German finance minister, echoed Bullard’s concerns, arguing that low interest rates in the eurozone are increasing the risk of bubbles in financial markets. “A low interest rate leads to a misallocation of resources with all the risks and side effects that you see when bubbles are forming,” he said.Wolfgang Schäuble, the German finance minister, echoed Bullard’s concerns, arguing that low interest rates in the eurozone are increasing the risk of bubbles in financial markets. “A low interest rate leads to a misallocation of resources with all the risks and side effects that you see when bubbles are forming,” he said.
However, ECB president Mario Draghi laid the blame for some of the eurozone’s troubles at Germany’s door, telling the Italian parliament that he had no doubt Germany’s oversized trade surplus breaks EU rules on “excessive imbalances”. However, ECB president Mario Draghi laid the blame for some of the eurozone’s troubles at Germany’s door, telling the Italian parliament that he had no doubt the country’s oversized trade surplus breaks EU rules on “excessive imbalances”.
Rock bottom oil prices have helped to drive down inflation in oil-importing countries in recent months — including the UK, where the latest reading on the consumer price index was zero. A renewed rise in oil prices will raise questions about the prospects for company profits.Rock bottom oil prices have helped to drive down inflation in oil-importing countries in recent months — including the UK, where the latest reading on the consumer price index was zero. A renewed rise in oil prices will raise questions about the prospects for company profits.