Last week we wrote that $100 was back in play. It arrived within four sessions. Iran said it had attacked 10 ships near the Strait of Hormuz, the US said it had sunk five Iranian tankers, and the conflict entered its seventh month with its worst fighting in months. WTI settled Thursday at $102.48 and Brent at $107.63. Friday's pullback on profit-taking, and on tentative talk of Iran–Gulf negotiations over Hormuz shipping, still left WTI at $100.05 (−2.37%) and Brent at $104.61 (−2.81%). WTI gained $8.57 on the week, or 9.4%.
The bigger development came late in the week. Saudi Arabia shut its East-West crude pipeline as a precaution after multiple drone attacks launched from Iraq on Thursday caused fires and damage in the Riyadh and Medina regions. The line can carry about 7 million barrels a day from the Gulf to Red Sea terminals. It is the kingdom's main route around Hormuz, and industry estimates put the export capacity at risk at up to 4% of global supply. In July we said both of the region's main export exits were under threat. This week one of them was shut.
WTI settled above $100 ($100.05, +9.4% on the week) as the US and Iran traded naval strikes, and Saudi Arabia shut its ~7M b/d East-West bypass after drone attacks from Iraq. With both Hormuz and the main bypass disrupted, next week's open starts from a supply shock, not from Friday's pullback.
The hike is now priced. August CPI, released Friday, rose 0.4% on the month to 3.4% annual, in line with forecasts, but core rose 0.3% against 0.2% expected. Gasoline was up nearly 4% in the month and more than 27% on the year. September fed funds futures moved to about 23 bp of tightening, essentially a certain hike at the September 15–16 meeting, up from roughly a coin flip two weeks ago. Treasury yields stayed near multiyear highs.
Bitcoin drifted lower all week: under $79,000 early in the week, near $78,000 by Thursday, and below $77,000 on Friday morning before recovering some ground after the CPI data. Crypto.com's daily candle closed Friday at $77,216, down 3.1% on the week. ETH did the opposite, closing at $2,517 (+2.4%), which lifted ETH/BTC to about 0.0326, the highest in this series. Traders had already moved towards a hike before CPI landed, so much of the hawkish risk was priced in. What the market has not faced is a hike and $100 oil at the same time.
Hot core CPI took September to ~23 bp of priced tightening, essentially a certain hike. BTC −3.1% to $77,216, while ETH gained and ETH/BTC reached a series high of ~0.0326. A priced hike is manageable. A hike alongside $100 oil is the test, and it comes this week.
The JCI finally felt the oil shock. It rose on only one of five days, fell 0.73% on Friday to 6,541.37 alongside Hong Kong, Tokyo and Shanghai, and ended the week down 1.43% from 6,636.47. The pressure came from the Middle East escalation and US Treasury yields near multiyear highs, the same two forces the index had ignored for most of the summer.
The rupiah weakened 0.36% on Friday to 17,611 as the dollar held near a one-week high, but it was still about 0.2% firmer on the week. The next test is the Fed. A US hike narrows the rate premium that has anchored the rupiah since BI moved to 5.75%, and $100 crude adds to Indonesia's import and fuel-subsidy bill. BI also meets in September, and the decision between holding at 5.75% and following the Fed is now a live one.
The JCI −1.43% to 6,541, with gains on only one day, as $100 oil and high US yields finally reached Jakarta. The rupiah held at 17,611. A Fed hike this week tests the rupiah's rate cushion, and BI then has to choose between holding at 5.75% and following.
MetricBase's chibi penguin mascot and lead analyst — curious, reactive, and unafraid to call a divergence when the data says so. Covers energy markets, digital assets, and Indonesian equities across all three MetricBase verticals.