Oil Rebounds as Mideast Truce Doubts Hit Markets

Global stock markets slipped on Thursday as hopes of a sustained Middle East ceasefire faded, pushing oil prices higher again and reviving fears of prolonged inflationary pressure across the world economy.

Investor relief proved short-lived as signs emerged that the fragile Gulf truce remained uncertain. Concerns deepened over continued disruption in the Strait of Hormuz, with Iran showing no clear indication that the key shipping route had fully reopened.

The latest uncertainty sent oil prices climbing back towards $100 a barrel, while equities lost momentum after an earlier rally driven by hopes of de-escalation.

US President Donald Trump said American forces would remain in the Gulf until a final agreement with Iran was reached and enforced, warning that military action could resume if Tehran failed to comply.

Tensions were further heightened by Israel’s heaviest strikes on Lebanon since the start of its latest confrontation with the Iran-backed Hezbollah group, with more than 250 people reported killed on Wednesday.

Although benchmark Brent and West Texas Intermediate crude futures had plunged sharply after the announcement of a US-Iran ceasefire earlier this week, prices in the physical oil market have remained elevated.

European and African crude prices rose to fresh record highs on Wednesday, underlining concerns that actual supply disruptions could continue even if financial markets had initially priced in a rapid easing of geopolitical risk.

The price of North Sea Forties crude climbed to an all-time high of $146.43 a barrel on Thursday, highlighting strong demand from Asian and European refiners seeking alternatives to Middle Eastern supplies.

The divergence between futures and physical crude prices suggests traders remain concerned that supply shortages will persist, especially as refiners scramble for prompt replacement cargoes from outside the Gulf.

Brent crude futures rose nearly 3.5 per cent to $98 a barrel on Thursday, while US WTI futures gained 4.6 per cent to $98.88. At the same time, Wall Street futures weakened and the pan-European STOXX 600 index fell 0.5 per cent after posting a strong rebound a day earlier.

Analysts said the market remained highly sensitive to political and military developments, with investors reacting quickly to every new headline from the region.

Government bond yields also moved higher again after dropping sharply on Wednesday, reflecting renewed concern that elevated oil prices could feed through into borrowing costs and central bank policy.

Fresh economic data added to the uncertainty. German industrial production unexpectedly fell in February, reinforcing concerns that Europe’s largest economy was already weakening even before the latest geopolitical shock.

Across Asia, Japan’s Nikkei closed 0.7 per cent lower after a strong gain in the previous session, while South Korean and Chinese shares also retreated.

On Wall Street, futures for the S&P 500 and Nasdaq both slipped ahead of the US market open.

Economists warned that with oil prices still significantly above pre-conflict levels, inflationary pressures are likely to intensify in the coming months.

In the United States, the core personal consumption expenditures index — the Federal Reserve’s preferred inflation measure — rose 2.8 per cent year-on-year in February, while a separate reading excluding food and energy showed a 3 per cent increase.

Although those figures matched expectations, separate data showed the US economy expanded by just 0.5 per cent in the fourth quarter, underscoring concerns about slowing growth alongside persistent inflation.

Market pricing now suggests investors have sharply scaled back expectations for interest rate cuts this year, as central banks may be forced to keep policy tighter for longer if energy costs continue to rise.

Analysts said bond and currency markets were still being driven largely by movements in oil, with investors struggling to assess the broader implications of the crisis.

The US dollar recovered some of its earlier losses, while the Japanese yen remained under pressure despite growing speculation over whether Japan’s central bank might eventually step in to support the currency.