Oil Prices Surge to Five-Month High Amid Middle East Tensions

Oil prices surged close to their highest level in five months amid concerns that escalating tensions in the Middle East could lead to increased U.S. involvement, according to Bloomberg. Asian stock markets experienced fluctuations following losses on Wall Street. West Texas Intermediate crude oil rose by up to 1.1% in Asia after gaining over 4% yesterday (June 17). Shares fell in Hong Kong but gained in Japan following the S&P 500’s 0.8% decline in New York. Weaker-than-expected economic data contributed to the drop in U.S. stocks and strengthened bonds ahead of a Federal Reserve monetary policy decision. The Bloomberg dollar index remained largely unchanged in Asia after recording its biggest gain in a month during U.S. trading hours. Treasury bonds saw gains from Tuesday, driven by geopolitical risks and weak retail sales, housing, and industrial production reports, reinforcing bets for rate cuts by the Fed. Oil extended recent gains following President Donald Trump’s demand for Iran’s ‘UNCONDITIONAL SURRENDER’ and a warning about possible attacks against the country’s leader, Ayatollah Ali Khamenei, posted on social media before meeting with his national security team. Conflicts in the Middle East raise insurance risks, which is why global financial markets have retreated, noted Stephen Dover, head of market strategy at Franklin Templeton. However, if the conflict doesn’t escalate significantly further, risks and oil prices may return to lower levels. Traders closely monitored economic data, as U.S. retail sales declined for the second month, indicating consumer anxiety due to tariffs and their economic impact. Industrial production dropped, and homebuilder confidence reached its lowest point since December 2022. Investors should expect volatility in economic data due to prolonged trade policy effects, said Bret Kenwell at eToro. While the economy and consumers are holding up, there are signs of vulnerability that could pose risks in the second half of the year, especially if job growth or spending slows further. With Fed officials convening for a two-day meeting in Washington, traders continue betting on two 25-basis-point rate cuts this year, with the first fully expected by October. The Fed is anticipated to keep rates steady in June and July but might outline intentions through revised economic and interest rate forecasts on Wednesday. A fourth consecutive meeting without a cut could provoke another attack from President Trump. Policy makers need the White House to resolve major uncertainties around tariffs, migration, and taxes before making moves. Israeli strikes on Iranian nuclear facilities have also introduced additional uncertainty for the global economy. Despite a strong ‘buy-the-dip’ mentality among investors this year, JPMorgan Chase & Co.’s Andrew Tyler believes it’s better to pull back from risk. Global stocks are set to outperform U.S. equities over the next five years, according to Bank of America Corp.’s latest fund manager survey, supporting the view that American market dominance is nearing its end.