Middle East Energy Risks Escalate as Oil Prices and Rate-Hike Expectations Rise

Daily News

Summary:

Houthi forces move closer to the Bab el-Mandeb Strait as oil prices surge above $107; ECB raises rates and signals a hawkish stance...

【Highlights】

1. Houthi forces move closer to the Bab el-Mandeb Strait as oil prices surge above $107

2. Trump-backed Venezuelan oil project plans to increase output by 150% by 2028

3. Bessent says Treasury market conditions remain very strong as smaller-than-expected buybacks fail to dent his optimism

4. OPEC cuts its oil demand growth forecast for the fifth consecutive time

5. US diesel prices surpass $6 per gallon for the first time, adding to inflation risks

6. ECB raises rates and signals a hawkish stance, prompting markets to increase bets on another hike in October

7. US August PPI rises while weekly jobless claims fall, strengthening the case for higher rates

【Details】

Houthi forces move closer to the Bab el-Mandeb Strait as oil prices surge above $107

Yemeni government military sources said on Thursday that the Iran-aligned Houthi movement had seized control of the Yemeni port city of Mokha and was advancing south along the Red Sea coast toward strategic island areas, further expanding its influence over the Bab el-Mandeb Strait at the southern end of the Red Sea.

The Houthi-run Humanitarian Operations Coordination Center said shipping in the Red Sea remained safe for all shipping companies except Saudi vessels. Hours earlier, US President Donald Trump said he expected the war with Iran to end after the US midterm elections.

As the regional conflict expands, Iran and its proxies are moving increasingly closer to gaining control over two critical maritime chokepoints: the Bab el-Mandeb Strait and the Strait of Hormuz. Bjorn Beirens, a maritime security adviser, said the fall of Mokha would undoubtedly have implications for maritime security in the region.

Trump-backed Venezuelan oil project plans to increase output by 150% by 2028

North America Blue Energy Partners (NABEP), a Venezuelan crude oil producer backed by the US government, plans to more than double its crude oil output in just over two years as part of the Trump administration’s efforts to boost oil production in the South American country.

The company currently produces around 200,000 barrels per day and aims to increase output to 500,000 barrels per day by the end of 2028. The expansion is expected to be funded through internal cash flow.

Some analysts consider NABEP’s plan highly ambitious, citing concerns over the service infrastructure supporting the business and the potential need to raise additional financing to support the expansion.

Bessent says Treasury market conditions remain very strong as smaller-than-expected buybacks fail to dent his optimism

US Treasury Secretary Scott Bessent sought on Thursday to play down concerns over the smaller-than-expected size of the Treasury buyback operation while also downplaying worries about a sharp rise in Treasury yields.

Bessent said the Treasury market is currently in very good shape. He highlighted the strong performance of two Treasury auctions in recent days and reiterated that the correlation between bond and energy prices has recently been unusually strong.

The two-year Treasury yield had previously reached its highest level since 2024, while the 10-year yield also climbed to its highest level since 2023.

Factors behind the recent sell-off included surging crude oil prices and the Treasury Department’s purchase of fewer bonds than expected. The Treasury announced on Wednesday that it planned to buy back up to $6 billion of bonds, but the actual amount repurchased on Thursday was only $5.19 billion.

Bessent explained that the Treasury only buys back bonds when prices are attractive, but in this operation, bondholders appeared more inclined to retain their long-dated securities. He said the Treasury would typically receive around $20 billion in offers to sell, compared with only about $10 billion this time.

OPEC cuts its oil demand growth forecast for the fifth consecutive time

OPEC’s monthly report showed that the organization cut its forecast for global oil demand growth in 2026 to 380,000 barrels per day, marking the fifth consecutive downward revision.

OPEC continues to believe that the impact of the Iran war on oil consumption has been smaller than estimated by other forecasting institutions such as the International Energy Agency (IEA), which expects global oil demand to decline in 2026.

The report also showed that while OPEC lowered its forecast for oil demand growth this year, it raised its forecast for 2027. OPEC now expects global oil demand to increase by 2.36 million barrels per day in 2027, up from its previous forecast of 2.16 million barrels per day.

For 2026, OPEC lowered its global oil demand growth forecast to 380,000 barrels per day from 580,000 barrels per day previously.

Crude oil production by OPEC and former member the United Arab Emirates averaged 38.05 million barrels per day in August 2026, an increase of around 300,000 barrels per day from July. Russia’s oil production fell by 160,000 barrels per day in August from the previous month to 8.718 million barrels per day.

US diesel prices surpass $6 per gallon for the first time, adding to inflation risks

According to price-tracking firm GasBuddy, the national average price of diesel in the United States surpassed $6 per gallon for the first time on Thursday local time.

The US-Iran war and Ukrainian attacks on Russian refineries have both squeezed diesel supplies. Diesel is a critical component of economic activity, powering the trucks, trains, ships and heavy equipment that keep supply chains running, while also serving as an important source of energy for agricultural production.

Rising fuel prices have also become a difficult issue for President Donald Trump and Republican lawmakers as they seek to maintain the party’s narrow majority in Congress in the November midterm elections.

GasBuddy analyst Patrick De Haan said every truck, delivery, package and grocery-shopping trip is now becoming more expensive. Record diesel prices could reignite inflation throughout the supply chain.

According to the firm’s data, the national average diesel price is about $2.30 per gallon higher than a year ago.

ECB raises rates and signals a hawkish stance, prompting markets to increase bets on another hike in October

The European Central Bank (ECB) raised its deposit rate from 2.25% to 2.50%, marking its second rate hike of the year, as it seeks to contain inflationary pressures stemming from higher energy prices.

The ECB warned that price pressures could prove more persistent than previously expected, prompting markets to increase their bets on another rate hike as early as October.

ECB President Christine Lagarde described the decision as a “no-brainer” and warned that inflation is currently expected to return to the ECB’s 2% target only by the end of 2027, although that timeline could be pushed back further.

Traders have increased their bets on further ECB tightening and are now fully pricing in three additional 25-basis-point rate hikes by the middle of next year.

US August PPI rises while weekly jobless claims fall, strengthening the case for higher rates

US producer prices rose in August as prices for goods, airfares and hospital services increased, strengthening the case for the Federal Reserve to keep rates higher.

The US Bureau of Labor Statistics said the Producer Price Index (PPI) for final demand rose 0.4% month-on-month in August, while July’s reading was revised from unchanged to a 0.1% increase.

The PPI rose 5.4% year-over-year in August, compared with a 4.8% increase in July.

A separate Labor Department report showed that seasonally adjusted initial claims for state unemployment benefits fell by 1,000 last week to 206,000, further strengthening the case for higher interest rates.

【Today’s Key Events】

14:00 (UTC+8) UK July three-month GDP month-on-month growth

16:00 (UTC+8) IEA releases its monthly Oil Market Report

20:30 (UTC+8) US August CPI

22:00 (UTC+8) US preliminary September one-year inflation expectations

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