Brent crude oil breaks $100 for the first time since July; probability of a September rate hike rises to 60%: the "détente narrative" on the eve of the Fed's rate decision is shattered.

Brent crude oil breaks $100 for the first time since July; probability of a September rate hike rises to 60%: the "détente narrative" on the eve of the Fed's rate decision is shattered.

The market's previous pricing in a de-escalation of tensions between the US and Iran and a gradual resumption of shipping in the Hormuz was shattered by the reality that Brent crude oil returned to $100 per barrel for the first time since July 24. This reignited expectations of energy inflation and added further uncertainty to the interest rate outlook ahead of the Federal Reserve's September policy meeting.

Brent crude oil broke through the $100/barrel mark on Wednesday, rising more than 2% on the day, the first time since July 24. The daily oil throughput through the Strait of Hormuz has plummeted from the normal 18 million barrels to 4.9 million barrels, with shipping congestion worsening rather than easing. Meanwhile, Federal Reserve Chairman Warsh is focusing on controlling prices, and CME FedWatch data shows that the market's probability of a 25 basis point rate hike in September has risen to 60.4%, a sharp contrast to previous expectations of a rate cut.

U.S. stock index futures traded lightly on Wednesday, with the Dow Jones E-mini down 84 points (0.16%), the S&P 500 E-mini unchanged, and the Nasdaq 100 E-mini up slightly by 0.04%. Morgan Stanley's chief U.S. equity strategist, Mike Wilson, warned that "rising oil prices and interest rates remain the main near-term risks to the stock market," adding that strategic reserves have been significantly used to buffer oil prices.

Policymakers are also under pressure – the U.S. strategic petroleum reserve has fallen to 289.7 million barrels, a new low since 1982, while the Treasury is simultaneously pushing forward with bond buybacks to curb the rise in long-term bond yields. These multiple shocks coincided on the eve of the September 11 CPI data release and the September 15 Federal Reserve interest rate meeting.

The Hormuz obstruction worsens, and the narrative of easing is torn apart.

Brent crude oil has returned to $100 per barrel for the first time since July 24. As a crucial choke point handling approximately one-fifth of global oil shipments, the Strait of Hormuz normally sees a daily throughput of about 18 million barrels, but this has plummeted to 4.9 million barrels since the outbreak of the conflict. The US-Iran war has entered its seventh month, and the market's initial expectations of easing tensions and a resumption of shipping have been dashed by the renewed escalation of the situation in late August and early September—shipping disruptions have not only failed to ease but have worsened.

The U.S. Strategic Petroleum Reserve (SPR) has fallen to 289.7 million barrels by the end of August 2026, the lowest level since 1982. Since the start of the current U.S.-Iran conflict, approximately 58 million barrels have been released, representing about 14% of the total. If the current rate of release continues by another 39 million barrels, the SPR will further decline to approximately 243 million barrels, falling below the safe operating level of 250 million barrels. Coupled with the approaching midterm elections and the political pressure of gasoline prices being highly correlated with voter sentiment, the government's buffer against oil price fluctuations is nearing its end.

On the fiscal side, efforts are being made to "put out the fire" in the long term: the U.S. Treasury previously stated that it would purchase more long-term Treasury bonds to curb rising yields, and the repurchase announcement released on Wednesday has attracted attention. JPMorgan analysts said that some market participants are using this to confirm the scale of the Treasury's repurchase.

The probability of a September rate hike has risen to 60.4%, reigniting inflation expectations.

Oil prices exceeding $100 per barrel are transmitting to monetary policy through a chain of "rising oil prices → inflationary pressures → interest rate repricing." Federal Reserve Chairman Warsh emphasized controlling prices, leading traders to bet on a rate hike this month—CME FedWatch data shows the market probability of a 25 basis point rate hike in September has risen to 60.4%. Calculations suggest that if oil prices remain at $100 per barrel, the US inflation rate could rise from 2.4% in January to over 4%, far exceeding the Fed's 2% target.

Market focus has shifted to the CPI data released after the market closes on Friday, September 11, and the Federal Reserve's interest rate meeting on September 15. Glenmede strategists say this week's CPI report is the most important data point before the September meeting, and also the last inflation data policymakers will see before deciding on interest rates.

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