Indeed, the three major US stock benchmarks fell around 1 per cent overnight, while bitcoin slumped 7.5 per cent.
The yield on benchmark 10-year Treasuries hit a four-month high, while Australia’s S&P/ASX 200 sank 1.3 per cent on Wednesday.
The broad advance in commodity prices also adds to the growing risk that global inflation will be stickier than expected which could force central banks to keep interest rates higher for longer.
Better-than-estimated data on US job openings and factory goods orders overnight added to doubt about the pace of rate cuts in the world’s largest economy, with traders now projecting fewer rate cuts this year than the Federal Reserve.
Concerns about elevated consumer prices in Australia were also reflected in the ANZ-Roy Morgan survey of inflation expectations which showed the measure climbed 0.1 percentage points last week to a six-week high of 5.2 per cent.
ANZ economists attributed the increase to higher petrol prices heading into the Easter long weekend. The national average retail petrol price eased last week to $1.94 per litre, according to the Australian Institute of Petroleum.
Alarm bells
Crude oil prices have pushed higher this year amid the ongoing war between Ukraine and Russia and escalating tensions in the Middle East. The latest trigger was Israel’s airstrike on the Iranian embassy in Syria, which marked a rare confrontation between Israel and Iran since the Israel‑Hamas war began in October last year.
While Iran‑backed Houthi militants have severely disrupted trade through the Red Sea, physical oil supply has largely remained intact in the region. But the risk of supply disruptions will increase more significantly if the conflict widens to include Brent-producing nations such as Iran, which accounts for around 3 per cent of global supply.
Iran’s response to the embassy attack is therefore crucial to understand the nation’s intent to broaden the war, according to Commonwealth Bank energy analyst Vivek Dhar.
“An escalating Iran‑Israel fight, especially if Israel is backed by the US, can spell significant disruptions to oil supply,” Mr Dhar said. He suggested that Iran could block the Strait of Hormuz – around 15-20 per cent of the world’s oil supply travels through the waterway, and there are limited alternative routes.
CBA believes there is a low likelihood that Iran will respond so “disproportionately” to the embassy attack that it risks embroiling itself in a wider Middle East conflict.
Traders will also be closely watching a virtual meeting of The Organisation of the Petroleum Exporting Countries and its allies on Wednesday where the cartel is expected to affirm current production cuts.
As oil supply concerns eventually fade in Russia and the Middle East, CBA believes markets will return to OPEC+ supply policy and the trajectory of global demand to drive oil prices.
The bank is expecting Brent futures to track closer to the $US75 to $US80 a barrel range in the coming months as China’s oil demand growth undershoots International Energy Agency projections.
