Global oil prices climbed to their highest level since May on Thursday, and that climb rippled through bond and stock markets around the world. Brent crude, the international benchmark, gained nearly 6 percent to settle around $107.63 a barrel, while U.S. crude, West Texas Intermediate, jumped more than 6 percent to close at $102.48. It was the highest close for both benchmarks since mid May.
The move in energy prices coincided with a fourth consecutive losing day for major U.S. stock indexes. The Dow Jones Industrial Average fell 316.56 points, or 0.6 percent, to close at 52,064.10. The S&P 500 slipped 0.58 percent to 7,591.70, and the Nasdaq Composite dropped 0.65 percent to 26,081.72. It marked the S&P 500's longest losing streak since early March, even though the index remains roughly 11 percent higher for the year.
The backdrop is a period of elevated energy costs tied to an extended period of tension between the United States and Iran that has stretched over several months. Oil has climbed from less than $72 a barrel in early July, and traders have been watching shipping routes in the Middle East closely for any sign of disruption to tanker traffic. At the same time, a fresh reading on wholesale prices, the producer price index, rose 0.4 percent in August, matching expectations but reinforcing worries that energy costs are beginning to show up more broadly in the price of goods and services.
Those worries have pushed Treasury yields to some of their highest levels in years, with the benchmark 10 year yield edging toward the 5 percent mark. That has consequences well beyond Wall Street trading floors. Freddie Mac reported the average 30 year fixed mortgage rate at 6.76 percent this week, noticeably higher than a year earlier. Investors are now leaning toward the idea that the Federal Reserve, which held its key rate steady at a range of 3.50 percent to 3.75 percent in July, could raise rates by a quarter point when it meets again on September 15 and 16. That would be a notable shift after a year in which the Fed had been widely expected to hold steady or even cut.
The government's August consumer price index report is due out this morning and will be one of the last major data points the Fed considers before next Wednesday's decision. Markets will also be watching Friday's premarket trading, where major indexes were pointing to a firmer open even as the week's overall trend remained lower.
Why are oil prices rising so much?
Prices have climbed for months amid an extended period of tension in the Middle East that has raised concerns about disruptions to tanker shipping and crude supply.
Why does this matter for people who don't invest in oil stocks?
Higher oil prices tend to push up inflation and can influence Federal Reserve decisions on interest rates, which in turn affect mortgage rates, credit card rates, and borrowing costs generally.