Crude oil surges after Houthis join US-Iran conflict

Today’s headlines

What’s happening: Crude oil prices rose sharply this morning as investors grew increasingly nervous about the ongoing Middle East conflict.

What happened: Oil prices extended gains after Yemen’s Iran-backed Houthi rebels joined the conflict over the weekend.

News of more US troops being deployed to the region provided a further boost to oil prices this morning.

Why it matters: Brent crude has jumped around 54% over the past month after the Middle East conflict led to the closure of the Strait of Hormuz, a channel for around 20% of the world’s oil and gas supplies.

The conflict, which started on February 28, is being fought on multiple fronts. Yemen’s Houthis had already been voicing concern over the US-Israeli offensive on Iran. The rebel group conducted their first attack on Israel over the weekend.

The Houthis signalled that they would continue their attacks until strikes against Iran cease. The group has the capability to launch attacks on shipping lanes around the Red Sea and major energy infrastructure in Saudi Arabia.

The crude exports from Saudi, which were re-routed from the Strait of Hormuz route to Red Sea’s Yanbu port, reached 4.658 ⁠million bpd (barrels per day) last week, according to analytics firm Kpler.

The US military has been considering ground operations in Iran with the deployment of thousands of military troops to the region.

Last week, US President Trump extended the deadline for strikes on Iran’s energy infrastructure once again. This time the ultimatum was for 10 days, after his earlier warnings of five days and 48 hours to strike Iran’s power and energy plants.

Strength in the US dollar, due to speculations of the Federal Reserve hiking interest rates to control inflation, weighed on oil prices. This is because a higher greenback makes commodities more expensive for foreign currency holders. The US dollar index, which measures the greenback’s performance versus a basket of major peers, edged higher to 100.19 this morning.

Spot prices for WTI crude oil jumped around 12% to $103.06 per barrel this morning, while Brent crude climbed 11.3% to trade at $112.68 per barrel.

In other energy trading, gasoline rose 2.6% to $3.2731, while heating oil climbed 3% to $4.3616. Natural gas bucked the trend, with prices falling around 2.8% to $2.941.

What to watch: Investors will keep an eye on the ongoing talks between the US and Iran related to ending the ongoing conflict.

Data on EIA’s (Energy Information Administration) crude oil stocks change, scheduled for release on Wednesday, will remain in focus. US crude inventories jumped by 6.926 million barrels to 456.2 million barrels in the week ended March 20, marking the fifth straight weekly rise.

The markets today

The British pound in focus today ahead of a basket of major economic reports

Context: The GBP/USD forex pair slipped this morning as investors digested the latest economic data.

Details: Data released on Friday showed that the UK GfK consumer confidence index declined to -21 in March from -19 in the previous month. The latest reading fell to its weakest level in almost a year amid concerns over the ongoing Middle East conflict.

UK’s car production contracted by 10.7% year-over-year to 65,885 units in February following an 8.2% decline in the previous month. UK’s retail sales volumes declined 0.4% month-over-month in February versus a 2% gain in January. However, the figure was better than market expectations of a 0.7% decline. The latest decline in sales was the first in three months.

Investors continued monitoring the ongoing Middle East conflict, with Iran-backed Houthi militants joining the conflict and launching their first attack on Israel over the weekend.

Strength in the US dollar also weighed on the GBP/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, edged higher to 100.19 this morning.

The GBP/USD pair fell slightly to 1.3255 this morning.

What to watch: Investors await the release of data on UK’s mortgage approvals (1230 UAE Time), M4 money supply (1230 UAE Time) and net lending to individuals (1230 UAE Time) today.

Net mortgage approvals for house purchases in the UK, which declined to 59,999 in January from 61,007 in the previous month, are expected to rise to 61,000 in February. Analysts expect net lending to individuals in the UK to fall to £5.6 billion in February from the previous reading of £5.9 billion.

Other Markets: US trading indices closed lower on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 1.73%, 1.67% and 1.93%, respectively.

The news shaping the markets

Qatar and Ukraine announced a defence agreement over the weekend to counter threats from missiles and drones. The news sent the USD/RUB pair higher in forex trading this morning.

Brazil’s unemployment rate averaged 5.8% in the moving quarter to February, down from 6.8% in the year-ago period, which exerted pressure on the USD/BRL forex pair.

Mexico posted a trade deficit of $0.46 billion in February compared to a surplus of 1.65 billion in the last year. The latest reading missing market expectations of a surplus of $1.2 billion sent the USD/MXN pair higher in forex trading this morning.

France’s number of people registered as unemployed surged by 17,700 to 3.108 million in February, exerting pressure on the EUR/USD forex pair.

Macau’s trade deficit rose to MOP 9.9 billion in February from MOP 7.7 billion in the year-ago month, lending support to the USD/MOP pair in forex trading this morning.

What else to watch today

Italy’s PPI (1200 UAE Time), UK’s consumer credit (1230 UAE Time), mortgage approvals (1230 UAE Time), mortgage lending (1230 UAE Time), M4 money supply (1230 UAE Time) and net lending to individuals (1230 UAE Time), Eurozone’s economic sentiment (1300 UAE Time), consumer confidence (1300 UAE Time), consumer inflation expectations (1300 UAE Time), industrial sentiment (1300 UAE Time), selling price expectations (1300 UAE Time) and services sentiment (1300 UAE Time), India’s industrial production (1430 UAE Time) and manufacturing production (1430 UAE Time), Brazil’s IGP-M inflation (1500 UAE Time) and bank lending (1530 UAE Time), Spain’s business confidence (1500 UAE Time), Germany’s inflation rate (1600 UAE Time) as well as US NY Fed bill purchases 4 to 12 months (1720 UAE Time) and Dallas Fed manufacturing index (1830 UAE Time).