Oil Slips but Supported by Sustained Middle East Tensions

Dow Jones
10/02
 
 

Oil prices slipped but looked supported by persistent supply fears amid continuing tensions in the Middle East, while Asian government bond yields were mostly lower, tracking a retreat in U.S. Treasurys yields from multiyear highs.

The Pentagon is sending a third aircraft-carrier strike group and additional Marine Corps ships to the Middle East, adding 9,000 to 10,000 more troops to the region as President Trump considers renewing strikes on Iran after the midterm elections, according to a Wall Street Journal report.

"The prospect of renewed attacks by the U.S. were heightened," ANZ Research analysts said, citing the Journal report. "President Trump is also said to have told aides that he expects to resume bombing of Iran. This comes as the U.S. ramps up economic pressure on Iran through the continued blockade of Iran's ports," the analysts added.

The oil market is increasingly pricing in a risk premium for the lack of a clear diplomatic off-ramp, Phillip Nova's Priyanka Sachdeva said in a note.

With no end of the war in sight, Barclays raised its fourth-quarter Brent crude forecast by $20 to $115 a barrel, bringing its full-year 2026 projection to $100 per barrel.

Front-month West Texas Intermediate crude oil futures were last 0.3% lower at $92.55 a barrel after starting the session with modest gains, while front-month Brent crude oil futures also turned a little lower to be off 0.15% at $102.16 a barrel, ICE data showed.

Yields on government bonds across Asia-Pacific mostly fell in the wake of Thursday's decline in Treasury yields after another Fed official suggested the next rate increase could wait. The 10-year Treasury yield hit a 24-year high of nearly 5.34% overnight, before reversing course to finish down 0.059 percentage point at 5.233%, its biggest drop in over a month.

Fed Vice Chair Philip Jefferson said Thursday that officials may need more time before determining whether to raise rates again, mirroring remarks by New York Fed President John Williams, who said Tuesday that there was "no need for urgency" following September's rate increase.

"Multiple Fed officials struck a patient tone on Thursday, collectively signaling a preference to hold rates steady at the" Federal Open Market Committee meeting this month, UOB's Global Economics & Markets Research team said in a report.

The yield on Japan's 10-year government bonds fell 0.5 basis points to 3.092%, according to FactSet data. Yields on Australia's 10-year sovereign debt dropped 4.4 basis points to 5.358% and New Zealand's 10-year declined 4.5 basis points to 5.061%. Meanwhile, the 10-year Treasury yield edged 1.3 basis points higher to 5.250%.

Gold has been relatively resilient despite the recent sharp rise in yields. Spot gold was last 0.2% higher at $4,185.13 a troy ounce. Phillip Nova'a Sachdeva noted that gold's ability to stay above the $4,000 psychological level suggests that investors continue to maintain longer-term conviction in gold as a portfolio diversifier and hedge against geopolitical, fiscal and currency risks.

Regional equity markets were mixed, with markets in mainland China closed for a public holiday. Japan's Nikkei Stock Average was down 1.0%, South Korea's Kospi was up 0.1% and Australia's S&P/ASX 200 index was 0.6% higher.

 
 

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