Oil prices jump on Middle East tensions and US hurricane threat

Oil prices climbed sharply on Thursday as investors weighed rising tensions in the Middle East and production disruptions caused by a hurricane threatening the US coast. Brent crude, the international benchmark, gained 3.8% to reach $104 a barrel, prompting a wave of selling across global bond and equity markets.

Possible strikes on Iran

According to a report in The Atlantic, the White House has asked the Pentagon to prepare options for strikes against Iran ahead of the US midterm elections. The report cites unnamed officials in Donald Trump's administration, who said the scale and targets of any strikes, and whether they proceed at all, are still under discussion. The report has dented hopes that Trump will avoid escalation before next month's vote. A "limited operation" could be followed by more substantial action after the midterms.

The US-Israeli war against Tehran is now in its eighth month. Attacks on tankers in the strait of Hormuz have reached their highest level of the conflict, reducing traffic and deepening supply concerns. The most recent incident came on Wednesday, when a tanker was struck by multiple projectiles off Qatar's north coast, causing casualties, according to the United Kingdom Maritime Trade Operations.

Storm in the Gulf of Mexico

Prices were also lifted after tropical storm Isaias strengthened into the first hurricane of the Atlantic season. Shell and Chevron said they were shutting down production as the storm approached, with landfall forecast for Friday or Saturday. Danish shipping group Maersk said it was raising its emergency fuel surcharge on all export collections and import deliveries.

Market reaction

Higher energy costs have stoked inflation fears and strengthened expectations that central banks will need to raise interest rates. The bond sell-off continued: France's 10-year yield rose 6 basis points to 4.931%, just below last week's 24-year high of 4.994%. Germany's 10-year yield edged up to 3.504%, and the US 10-year Treasury yield climbed to 5.331%.

Equities fell as well. Japan's Nikkei lost 1.4%, South Korea's Kospi dropped 2.6%, the Stoxx Europe 600 slid 1%, and the UK's FTSE 100 slipped 0.6% in early trading.