Oil prices continued to trade around a five-month high on Tuesday morning, as traders weighed the risk of further Iranian attacks in the Strait of Hormuz, amid relatively strong flows of crude oil from the Persian Gulf.
International benchmark Brent crude futures traded at around $110 a barrel ahead of the European markets opening, while US benchmark WTI crude traded above $104 a barrel for delivery next month.
According to ING's commodities strategists, the high prices despite strong flows "suggest the market is pricing in a significant risk premium, given the situation's volatility". There is no sign for now that the risk premium is about to erode.
The strategists added that record tanker freight rates are adding to costs. The US is considering allowing the sale of sanctioned tankers, enabling them to return to the legitimate market, boost shipping capacity and reduce oil delivery costs. However, they noted that it remains unclear how much capacity this would add or how quickly it could bring any relief to prices.
US Energy Secretary Chris Wright told Fox News that crude flows from the Gulf have recovered to about 80% of their pre-war level. However, supplies of refined products face greater constraints.
Meanwhile, Asian LNG spot prices rose to $30.4 per million British thermal units on Monday, the highest since December 2022, Bloomberg reported, citing traders. This comes as UK Maritime Trade Operations reported that an LNG tanker came under fire from a small boat off Yemen on Saturday, fuelling further concerns about the safety of energy shipments in the region.
European gas prices were also trading near their highest levels in years. Dutch TTF natural gas futures for delivery next month were just below €88 per megawatt-hour on Tuesday morning, easing somewhat from above €89 just before 6am, according to ICE data.
Stock markets in the red
European stock markets opened with slight losses on Tuesday, after coming under pressure on Monday, when French stocks and bonds led the declines. Protests in France weighed on market sentiment, putting the spotlight on the unsustainable finances of Europe's second-largest economy.
In London, the FTSE 100 lost 0.2% at the open, as did the CAC 40 in Paris, while the DAX in Frankfurt lost more than 0.4%.
In the UK, investor sentiment was slightly supported by reports that Chancellor John Healey will not raise capital gains tax in next week’s Budget. The tax rate is currently 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, compared with income tax rates of 20% to 45%.
Additionally, the UK labour market proved to be more resilient than expected. The unemployment rate fell to 4.7% in the three months to August, from 4.9%. The number of payrolled employees in the UK increased by 13,000, the biggest rise in a year. The stronger figures could give the Bank of England more room to hold its key interest rate steady as it tackles inflation.
In Asia, tech firms led heavy losses as investors brushed off a rebound on Wall Street amid growing fears about the AI investment boom ahead of key earnings releases.
The Nikkei 225 in Tokyo dropped 1.3% as Kioxia shed nearly 2% and tech investor SoftBank plunged more than 5%. The Shanghai Composite index recovered to close 0.1% higher. In Hong Kong, the benchmark index lost 1.1%, while South Korea's Kospi lost more than 3.7% by the time European markets opened.
South Korean AI infrastructure company Elice fell as much as 33% on its Kosdaq debut, amid concerns about borrowing costs, competition and the long-term returns on AI spending.
Taiwan's TSMC was also in the red, though the country's Taiex inched higher.
There were also losses in Sydney, Singapore, Wellington and Manila.
The selling came despite a positive day on Wall Street, where the Nasdaq was pushed solidly higher by gains in Amazon, Microsoft and Nvidia.
Focus is now on company earnings, with SpaceX, Meta and Tesla due to report this week.
Since markets hit record highs in June, investors have increasingly questioned whether tech companies are worth their high valuations — and when, if ever, their huge spending on AI will pay off.
Rising interest rates have also raised concerns about heavily indebted firms, as higher borrowing costs put pressure on their finances.
In the bond market, US, German and French 10-year government bond yields eased slightly, with the US yield at around 5.123%, France's at 4.903% and Germany's at around 3.439% right after the European opening.
In currency trading, the US dollar inched down to 158.45 Japanese yen from 158.46 yen. The euro traded at $1.1225, little changed from $1.1227.
Gold prices were slightly lower when European stock markets opened, trading at around $4,152.80 an ounce.