Oil prices climbed more than 4% during Wednesday's trading, approaching their highest levels in six weeks after Brent crude moved above $95 a barrel, as mounting concerns over potential supply disruptions in the Middle East continued to support the market. Ongoing military confrontation between the United States and Iran, along with threats from the Iran-backed Houthis against maritime shipping, remained the primary drivers of the rally.

Brent climbs above $95 as concerns grow over Hormuz and Bab el-Mandeb

Brent crude futures rose $3.82, or 4.2%, to $94.83 a barrel by 09:38 GMT after touching an intraday high of $95.24.

US West Texas Intermediate (WTI) crude futures gained $3.65, or 4.33%, to $87.99 a barrel.

Both benchmarks reached their highest levels since June 11.

The US military announced that it had carried out an eleventh consecutive night of strikes against Iran, shortly after Kuwait's military said its air defenses had intercepted Iranian drones.

In addition to renewed tensions surrounding the Strait of Hormuz, the Houthis opened a new front in the conflict by threatening to target ships transporting Saudi crude through the Bab el-Mandeb Strait and declaring a naval blockade on Saudi Arabia.

Tim Waterer, chief market analyst at KCM Trade, said the energy market is now facing a dual risk, with the Bab el-Mandeb Strait emerging alongside the Strait of Hormuz as another major geopolitical flashpoint while traders closely monitor shipping activity in the Red Sea.

He added that Bab el-Mandeb, located at the southern entrance to the Red Sea, has become increasingly important for Saudi crude exports after shipping through the Strait of Hormuz declined sharply again following the collapse of the US-Iran ceasefire agreement earlier this month.

Tanker rerouting and focus on US inventory data

Shipping data showed that three tankers carrying Saudi crude to China and India changed course in the Red Sea on Tuesday, heading toward the Suez Canal instead of sailing along the Yemeni coast.

Frank Walbaum, market analyst at Naga.com, said Houthi threats had forced tankers to alter their routes, increasing pressure on the physical oil market and potentially disrupting Saudi exports, a development that could continue to support higher prices.

The report added that Asian refiners have begun exploring alternative routes for Saudi crude shipments from the Red Sea port of Yanbu via the Suez Canal and around the Cape of Good Hope in response to the latest security threats.

Despite tighter global oil supplies caused by the conflict, preliminary data from the American Petroleum Institute (API) showed US crude oil and distillate inventories increased last week, while gasoline inventories declined, according to market sources.

The figures come ahead of official data from the US Energy Information Administration (EIA), due later on Wednesday, which investors will closely watch for fresh signals on supply and demand trends in the world's largest oil-consuming economy.

The US dollar rose for a fourth consecutive session on Tuesday, supported by higher oil prices as escalating tensions in the Middle East fueled concerns that inflationary pressures could persist for longer.

The US Dollar Index, which measures the greenback against a basket of major currencies, gained 0.17% to 101.16.

The euro fell 0.11% to $1.1402, while the British pound declined 0.39% to $1.3376, marking its fourth consecutive daily loss, according to Reuters data.

The Japanese yen also weakened 0.41% to ¥163.14 per dollar, trading beyond the 163 level for the first time since December 1986 as investors watched for any signs of intervention by Japanese authorities to support the currency.

Currency markets remained focused on escalating geopolitical risks in the Middle East, where continued military confrontations have pushed oil prices higher, raising concerns over global energy supplies and the persistence of inflationary pressures.

The dollar's gains followed a ninth consecutive night of US airstrikes on Iran, reinforcing demand for the greenback as one of the market's preferred safe-haven assets during periods of heightened geopolitical uncertainty.

Gold prices rose in European trading on Wednesday, extending gains for a second consecutive session to reach their highest level in two weeks, supported by strong demand from retail investors and a pause in the US dollar’s recent advance against a basket of currencies.

The continued surge in global oil prices to fresh six-week highs has renewed concerns about inflationary pressures facing Federal Reserve policymakers and strengthened expectations that US interest rates could be raised this year.

The Price

• Gold prices rose 1.6% to $4,141.73 an ounce, the highest level since July 7, after opening at $4,077.55. They touched an intraday low of $4,076.87.

• Gold settled 1.75% higher on Tuesday, recording its second gain in three sessions as prices recovered from a two-week low of $3,959.72 an ounce.

US dollar

The US Dollar Index fell more than 0.2% on Wednesday, retreating from a one-week high amid correction and profit-taking, reflecting a pause in the US currency’s advance against a basket of major currencies.

A weaker US dollar makes dollar-denominated gold more attractive to buyers holding other currencies.

Global oil prices

Oil prices rose more than 4% on Wednesday, extending gains for a second consecutive session to reach six-week highs as concerns over supply disruptions in the Middle East intensified amid continued military escalation between the United States and Iran, along with Houthi threats targeting Saudi-linked ships and oil tankers.

Iran conflict update

• The US military announced the completion of its eleventh consecutive night of airstrikes against Iranian military targets.

• The strikes targeted command centers, logistics facilities, drone storage sites, and naval equipment as part of efforts to protect international shipping through the Strait of Hormuz.

• Iran said it would continue its military response, including attacks on US military sites and bases across the region.

• US President Donald Trump warned that a suspected Iranian nuclear site in the Jabal Al-Fas area could soon face a major military strike.

• Tehran responded that any attack on its nuclear facilities would officially mark an expansion of the war across the entire region.

• Mediation efforts led by several regional parties, including Pakistan and Qatar, remain underway in search of a ceasefire, although no formal agreement or new truce has yet been announced.

US interest rates

• Cleveland Federal Reserve President Beth Hammack joined a growing number of policymakers arguing that further interest rate hikes may be necessary to bring persistent inflation under control.

• According to the CME FedWatch Tool, rising global oil prices have reduced the probability of the Federal Reserve leaving interest rates unchanged at its July meeting from 85% to 73%, while the probability of a 25-basis-point increase has risen from 15% to 27%.

• The probability of rates remaining unchanged at the Federal Reserve’s December meeting has fallen from 20% to 14%, while the probability of a 25-basis-point increase has risen from 80% to 86%.

• Investors are closely monitoring upcoming US economic data to reassess those expectations.

Gold outlook

Tim Waterer, chief market analyst at KCM Trade, said buyers had entered the market in search of attractive opportunities following the recent decline, while hopes for diplomatic progress between the United States and Iran were also supporting price movements.

SPDR Gold Trust

Holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased by around 2.28 metric tons on Tuesday, marking a second consecutive daily rise.

Total holdings climbed to 1,005.87 metric tons, the highest level since June 25.

The British pound edged higher against a basket of major currencies in European trading on Wednesday, attempting to recover from a one-week low against the US dollar as the greenback eased slightly amid continued military exchanges between the United States and Iran.

The latest rise in global oil prices has renewed inflation concerns among Bank of England policymakers and strengthened expectations for a UK interest rate hike this year. Investors are awaiting key UK inflation data for June later today to reassess those expectations.

The Price

• The pound rose 0.1% against the US dollar to $1.3390, up from the opening level of $1.3375. It touched an intraday low of $1.3372.

• Sterling lost 0.4% against the dollar on Tuesday, marking its fourth consecutive daily decline, and fell to a one-week low of $1.3359. The currency came under pressure from continued military tensions between the United States and Iran, as well as comments from the new UK prime minister about allowing British bases to be used in US airstrikes on Iranian territory.

US dollar

The US Dollar Index fell around 0.1% on Wednesday, retreating from a one-week high amid correction and profit-taking, reflecting a slight slowdown in the US currency against a basket of major and minor peers.

Global oil prices

Oil prices rose more than 1% on Wednesday, extending gains for a second consecutive session to reach six-week highs as concerns over supply disruptions in the Middle East intensified amid continued military escalation between the United States and Iran, along with Houthi threats targeting Saudi-linked ships and oil tankers.

Iran conflict update

• The US military announced the completion of its eleventh consecutive night of airstrikes against Iranian military targets.

• The strikes targeted command centers, logistics facilities, drone storage sites, and naval equipment as part of efforts to protect international shipping through the Strait of Hormuz.

• Iran said it would continue its military response, including attacks on US military sites and bases across the region.

• US President Donald Trump warned that a suspected Iranian nuclear site in the Jabal Al-Fas area could soon face a major military strike.

• Tehran responded that any attack on its nuclear facilities would officially mark an expansion of the war across the entire region.

• Mediation efforts led by several regional parties, including Pakistan and Qatar, remain underway in search of a ceasefire, although no formal agreement or new truce has yet been announced.

UK interest rates

According to global interest rate futures markets, traders are currently pricing in around a 30% probability that the Bank of England will raise interest rates at its July meeting.

UK inflation data

Investors are awaiting key UK inflation data for June later today, which could reshape expectations for British interest rates and significantly influence the Bank of England's monetary policy outlook.

The headline Consumer Price Index is due at 06:00 GMT and is expected to rise 2.7% year-on-year in June, easing from 2.8% in May. Core inflation is forecast to slow to 2.5% from 2.6%.

Pound outlook

We expect that if UK inflation data comes in below market expectations, the probability of further Bank of England rate hikes this year will decline, adding renewed downward pressure on the British pound.