Investors remained uneasy despite the International Energy Agency announcing plans to release 400 million barrels of oil from strategic reserves, the largest release in its history. As part of the move, the United States said it would begin releasing 172 million barrels of oil starting next week.
Oil prices surged sharply. Brent crude rose about 9 percent to reach 100.22 dollars per barrel, extending a gain of more than 4 percent recorded overnight. West Texas Intermediate climbed to 95.41 dollars per barrel.
Equity markets across the region declined. The MSCI Asia Pacific Index excluding Japan fell 1.6 percent, while the Nikkei 225 dropped 1.5 percent.
Chinese blue chip stocks declined by 0.6 percent and Hong Kong’s Hang Seng Index slid 1.2 percent.
In the United States, futures linked to the S&P 500 and Nasdaq Composite both fell around 1 percent. In Europe, futures tied to the EURO STOXX 50 declined 1 percent, while DAX futures dropped 1.1 percent.
Meanwhile, tensions in the Gulf intensified after Iraqi security officials reported that two fuel tankers in Iraqi waters were struck by explosive laden Iranian boats early on Thursday. Another Iraqi official told state media that the country’s oil ports had completely halted operations.
Bloomberg reported that Oman had evacuated all vessels from its main oil export terminal at Mina Al Fahal as a precaution.
Tony Sycamore, an analyst at IG Group, said several tankers carrying Iraqi crude were reportedly burning in the Persian Gulf near Basra. He said the vessels were engulfed in flames and leaking burning oil into the water.
According to Sycamore, the developments appeared to represent a direct Iranian response to the IEA’s announcement of a large strategic oil reserve release intended to stabilise surging prices.
Earlier, Iran had intensified attacks on merchant vessels passing through the Strait of Hormuz and warned that global oil prices could reach 200 dollars per barrel. On Wednesday, three ships were reportedly struck in Gulf waters after Iran’s Islamic Revolutionary Guard Corps said it had fired on vessels that ignored its orders.
Adding to the uncertainty, Donald Trump said on Wednesday that the war against Iran had been won but indicated that the United States would continue military operations until its objectives were fully achieved.
Rising inflation concerns
Economic data from the United States showed that the Consumer Price Index increased by 0.3 percent in February. The figure matched market forecasts and was slightly higher than the 0.2 percent increase recorded in January. However, analysts said the data was less relevant given that the Iran conflict has begun driving inflationary pressures.
In global bond markets, fears of rising inflation outweighed the usual demand for safe assets. Yields on 10 year US Treasury bonds rose by four basis points to 4.2472 percent on Thursday after increasing six basis points the previous day.
Expectations for interest rate cuts in the United States also declined. Investors are now anticipating only one additional rate reduction from the Federal Reserve this year because higher inflation could make it harder for policymakers to loosen monetary policy.
Concerns about energy driven inflation have also led markets to believe that the next interest rate move from the European Central Bank could be an increase, possibly as early as June.
Currency markets reflected rising caution among investors. Many sought the safety of the US dollar while avoiding currencies of countries that rely heavily on energy imports, including Japan and several European economies.
The Euro slipped 0.3 percent to 1.1536 dollars after closing at its weakest level since November last year. The US dollar strengthened slightly to 159.12 Japanese yen, the strongest level since January when reports of rate checks by the Federal Reserve unsettled investors betting against the yen.
The risk sensitive Australian dollar declined 0.3 percent to 0.7133 dollars after reaching a more than three year high of 0.7188 on Wednesday amid expectations that Reserve Bank of Australia could raise interest rates soon.
