Oil surges amid soaring Middle East tensions

Oil prices are rising due to increased tension in the Middle East, with tensions building up further. The DXY US Dollar Index is above 102, but it remains below a target of 102. 60 airstrikes took place by the UK and the US against Houthi positions in Yemen, marking the next step in the story around the Red Sea. The US and UK have built a task force to restore safe passage in the Red Sea, with the aim of creating a new safe passage.

The DXY US Dollar Index is facing selling pressure, with US Dollar bulls unable to rely on a stronger inflation report, tight labor market conditions, or Fed officials pushing back on March rate cuts to supply uplift. This Friday, the Producer Price Index is on the docket. Crude Oil (WTI) trades at $74.15 per barrel, while Brent Oil trades at $79.37 per barrel.

Iran issued a statement stating that military actions from the UK and US will fuel insecurity in the region. Overnight, a UK and US task force performed missile strikes on Houthi rebel positions in Yemen. In recent weeks, option markets were short on oil, with a risk of sellers now facing a short squeeze on the ramped up geopolitical tensions. With the eruption of tensions in the Middle East and Red Sea, passage in the area might further decline and see shipping fees soar, which in turn will add to inflation.

Oil prices are hurting short sellers that have built up quite a position in these past few weeks. With the UK and US now performing attacks on Houthi rebels in Yemen, geopolitical tensions will start to rise further, pushing up uncertainty on Oil supply worldwide. On the upside, $74 is getting broken, opening room for Oil to move into.