By Martin Baccardax

'Wall Street remains on oil market watch this week as crude prices booked their biggest weekly gains in nearly four years and continued to march firmly higher as the U.S.-Iran war brings shipping traffic in the Strait of Hormuz to a virtual standstill.

Oil and energy prices remain the key drivers of market risk since the U.S. began striking Iranian targets last Saturday as part of Operation Epic Fury.

U.S. crude prices have soared more than 25% over the past six days and almost 50% over the past two months. Futures for April delivery were trading at $84.46 a barrel, the highest in nearly two-and-a-half years.

"The market remains well supported with few signs of de-escalation in the Middle East and a resumption of energy flows in the region," said ING's head of commodity strategy, Warren Patterson. "Clearly, with every day that goes by without flows resuming, the oil market will reprice the amount of supply lost, leaving room for prices to move higher."

Crude's advance has dictated both the gains we've seen this week in benchmark volatility gauges as well as the broader moves witnessed in domestic stock markets.

The Cboe Group's VIX index has jumped more than 36% over the past month, and 22% from last week's close, and now points to daily swings of more than 100 points for the S&P 500 over the coming month.

It also has boosted the value of the U.S. dollar, which is used in the pricing of both WTI and Brent crude, the global benchmark. The U.S. dollar index, which tracks the greenback against a basket of six global currencies, has gained 2.7% this week and was trading Friday at 99.254.

Higher oil prices have a layered effect on stocks in that the inflationary pressures they generate can influence central bank policy, keeping interest rates higher for longer. That keeps a lid on stock gains as higher "risk free" rates weigh on the present value of future profits and dividends.

The S&P 500 has held up reasonably well this week given the alarming headlines and the expanding military activity in the Gulf region, but the benchmark is still down around 0.7% from last Friday's close and remains highly vulnerable to swings in the oil and energy markets. Stocks were set for further declines on Friday as well.

Bond markets are clearly reflecting the inflationary concerns, however, with benchmark 10-year Treasury note yields up more than 18 basis points since the conflict began. They were trading Friday at 4.175%, while 2-year note yields have surged 23 basis points to 3.623%.

Higher energy costs also erode consumer spending power as more cash spent on gas and electricity leaves less room for discretionary purchases. Pump prices have risen more than 11% this week to $3.32 a gallon, the highest in more than a year. That's a big deal in an economy that relies on consumer spending for the lion's share of its growth.

Michael Gayed, portfolio manager at the Free Markets ETF, also argued that the speed of the oil price increases likely is more concerning than the absolute levels.

"A slow grind higher in oil prices behaves like a tax that the economy absorbs, one that seeps into input costs, transportation, and eventually wages," he said. "A violent spike behaves like a shock that the economy cannot absorb, one that breaks consumption, craters confidence, and invites recession."

U.S. officials, unsurprisingly, have been looking at various ways to alleviate the current oil and energy price shocks, with reports suggesting a range of options including tapping the nation's Strategic Petroleum Reserve or allowing the Treasury Department to trade in the oil futures market.

The Treasury, in fact, issued a 30-day waiver to India that allows it to buy sanctioned crude from Russia in order to free-up global supplies.

"While this might help put some immediate downward pressure on the market, it isn't a game-changer," said ING's Patterson. "The only way for prices to come down on a sustained basis is a resumption of oil flows through the Strait of Hormuz."

Write to Martin Baccardax at martin.baccardax@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 06, 2026 06:34 ET (11:34 GMT)

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