Oil prices rose more than 2% on Tuesday after attacks on Saudi Arabian energy infrastructure left the kingdom’s East-West pipeline offline, raising fears that damage to energy infrastructure and transport routes could take longer to repair.
Brent crude futures rose $2.5, or 2.37%, to $108.18 a barrel at 0813 GMT, while US West Texas Intermediate futures were up $2.46, or 2.43%, at $103.85 a barrel.
Saudi Arabia closed its critical East-West pipeline that bypasses the Strait of Hormuz after drones launched from Iraq damaged it, exacerbating supply disruptions. The pipeline is a key alternative route for Saudi crude exports when the Strait of Hormuz is threatened.
International media reported that the Saudi-led coalition in Yemen said 13 civilians were injured Monday after Houthi forces launched a wave of ballistic missile and drone attacks into Saudi Arabia.
Meanwhile, Iran's military said it destroyed an advanced American drone over the Strait of Hormuz, following a series of operations by Tehran against U.S. unmanned naval systems in the Gulf. U.S. President Donald Trump said Sunday that the U.S. could continue its campaign against Iran and take control of its oil.
U.S. Central Command disputed a claim by Iran's Islamic Revolutionary Guard Corps that the Panama-flagged oil tanker El Gaia struck a naval mine in the Strait of Hormuz.
"The Panama-flagged oil tanker El Gaia was struck by an Iranian missile last month and rendered inoperable," CENTCOM said. "The IRGC's false claim is yet another example of their lies and intimidation attempts while they try to impede commercial vessels in the strait."
Oil prices and Treasury yields are moving in a tight lockstep, compounding pressure on markets as investors grapple with worries over higher inflation.
The one-month rolling correlation between front-month West Texas Intermediate crude and the 10-year Treasury yield has climbed to 0.96, according to BMO Capital Markets. That is the strongest positive relationship since June 2019, and before that October 2014.
The synchronized moves come as oil prices have surged due to the conflict in the Middle East, with the benchmark 10-year Treasury yield briefly topping 5% Monday for the first time since October 2023.
Industry veterans said the exceedingly tight relationship means another leg higher in oil could increasingly reverberate across financial markets through higher inflation expectations, elevated Treasury yields and steep borrowing costs, while potentially keeping Federal Reserve monetary policy tighter for longer.
Consumers face a similar double hit. Higher energy prices feed directly into gasoline costs and indirectly into goods and services transported by truck and rail, while rising Treasury yields filter into mortgages, auto loans and other borrowing costs.
"Both increase in the WTI crude price, along with the increase in the treasury yield, are bad news for the consumer," said one industry veteran.
For businesses, higher yields also raise the cost of financing inventories and investment, potentially weighing on capital-intensive projects such as the buildout of artificial intelligence and the energy infrastructure needed to support it.
While oil and Treasurys have entered a tighter relationship, it may not remain so if global tensions recede.
