Oil prices surge on Red Sea escalation

LONDON — Oil prices surged four percent on Friday after US and UK forces launched strikes against Iran-backed Houthi rebels following their attacks on ships in the Red Sea, fuelling concerns about a wider conflict in the crude-rich region.

Wall Street opened higher as the earnings season got under way in earnest with a slew of banks reporting results and wholesale inflation unexpectedly dipping in December, but the Dow slid lower in late morning trading.

JPMorgan Chase's profits dropped in the fourth quarter to $9.3 billion, but that was due to a one-off special levy of $2.9 billion by US regulators after the failures of Silicon Valley Bank and Signature Bank.

But both revenues and operating profits rose, and the results were above analyst expectations and the bank offered a strong outlook for 2024.

The bank's share price stood 0.5 per cent higher in late morning trading.

But Citibank missed expectations reporting a large loss and announcing it will cut 20,000 jobs to boost its competitiveness.

It's shares slid 0.7 per cent.

Tokyo and European stock markets ended the week with strong gains as traders brushed off data showing that US inflation rose more than expected in December.

The luxury sector was also in focus after British fashion brand Burberry posted a profit warning, sending its share price sliding more than 9 per cent at one stage in London.

The oil market was in sharp focus as US and British forces struck rebel-held Yemen on Friday after weeks of attacks on Red Sea shipping by the Iran-backed Houthis, who say they are acting in solidarity with Palestinians in war-ravaged Gaza.

“The fear in the oil market is that the region is on an unpredictable escalating path, where at some point down the road supply of oil will indeed in the end be lost,” noted Bjarne Schieldrop, chief commodities analyst at SEB bank.

He noted that if the allied attacks were unsuccessful in destroying Houthi weapons, and oil tankers need to go around Africa, then up to 80 million barrels will be locked in transit, sending prices up as much as $5-10 per barrel.

The Houthis have carried out a growing number of strikes on vessels in the Red Sea, a key international shipping route, since the Gaza war erupted in October.

The attacks have affected trade flows at a time when supply strains are putting upward pressure on inflation globally.

After rising more than 4 per cent, with Brent crude rising above $80 per barrel, oil prices pared gains.

The jump in oil prices sparked concerns about a fresh spike in inflation that could complicate central bank efforts to cut interest rates.

Data out Thursday showed that US consumer price index rose more than forecast in December, dimming prospects that the Federal Reserve (Fed) would start its rate-cutting cycle in March.

But data out Friday that US wholesale prices defied predictions to edge lower in December last year.

“A downside miss in US PPI for December has once again pulled forward speculation about central bank rate cuts,” said Michael Hewson at CMC Markets.

Investors are keenly waiting for a drop in interest rates, which central banks hiked in 2022 and 2023 in a bid to cool decades-high inflation.

While rates of price rises have slowed, inflation remains above target for the Fed, European Central Bank and Bank of England.