Oil prices neared $100 a barrel on Tuesday as tensions reheated in the Middle East, fueling fears that higher inflation data could sway the Federal Reserve to raise interest rates next week.
Brent crude oil futures jumped 1.1% to $98.27 a barrel while West Texas Intermediate crude rose 2% to $93.31. National average gasoline prices remained at $4.15 a gallon — the same as the previous day, which marked a record for Labor Day.
Prices were on the rise after the Saudi energy ministry – the world’s largest oil exporter – said operations at some of its facilities had been disrupted by strikes from Iran-aligned Houthis. More than 70 people were wounded in the attacks and emergency services were still working to contain the fires, officials said.
The Dow Jones Industrial Average fell 641 points, or 1.2%, by about 10:10 a.m. ET, while the S&P 500 and Nasdaq slumped 0.5% each as investors worried the Federal Reserve could be persuaded to hike interest rates for the first time in three years.
Shares in Exxon Mobil and Chevron rose 1.3% and 2.1%, respectively, as traders grew convinced higher oil prices could be here to last, likely pushing profits skyward for oil majors.
Uncertainty shook the bond market, too, as the US 10-year Treasury yield ticked up to 4.79% Tuesday.
Treasury Secretary Scott Bessent has said oil could sink as low as $40 to $50 a barrel if the Strait of Hormuz, a vital maritime route for energy supplies through the Persian Gulf, is fully reopened.
In a Monday night Truth Social post, President Trump vowed that gas prices will drop to $3 and eventually $2 a gallon “when we WIN the war with Iran.”
But as oil prices hit their highest levels in weeks, analysts at Goldman Sachs warned that benchmarks could ultimately reach $120 a barrel if the conflict in the Middle East continue to prolong shipping disruptions.
Goldman Sachs also raised its year-end forecasts for Brent and West Texas Intermediate by $5 — to $85 and $80 a barrel, respectively — and its 2027 forecasts to $80 and $75 a barrel, respectively.
The bank’s analysts said they expect shipping disruptions in the region to last into 2027 and that production will start to gradually recover by the second half of 2027.
Investors are anxiously awaiting fresh inflation data due this week, including the Producer Price Index on Thursday and the Consumer Price Index on Friday.
It’s the last inflation data Fed officials will receive before deciding whether to raise interest rates at their Sept. 16 meeting, a crucial decision that could influence the midterm elections as Americans grow frustrated with the economy.
Meanwhile, Saudi Arabia has vowed to retaliate following the overnight Houthi strikes.
On Saturday, the US military destroyed three Iranian oil tankers, a retaliatory attack after Iran launched ballistic missiles at two Navy warships.
Tehran threatened to continue attacking vessels traversing the Strait of Hormuz and called the American attacks on vessels a “war crime.”
War Secretary Pete Hegseth warned in a Saturday post on X that “if Iran shoots at US ships, we will destroy (and sink) their oil tankers.”
Responding in a post on Monday, Iranian Parliament Speaker Mohammad Bagher Ghalibaf wrote: “Strike our assets and you get struck.”