Oil Prices Climb on Middle East Tensions as Wholesale Inflation Firms

Matthew Rubin Chief Investment Officer

 

1. Renewed conflict in the Middle East lifted crude oil prices last week, though equity markets have held on to solid gains for the year.
2. Producer price inflation accelerated in August as energy costs climbed, matching estimates and reinforcing expectations for tighter Fed policy.
3. Initial jobless claims declined last week while continuing claims held steady, pointing to a labor market that remains on solid ground.

 

1. Oil Prices Rise as Middle East Tensions Escalate

Geopolitical tensions returned to the center of market attention last week. An exchange of strikes involving U.S. and Iranian naval assets over the preceding weekend lifted crude oil prices early in the week.¹ Attacks on energy facilities in southern Saudi Arabia, which the Kingdom’s energy ministry confirmed had halted some operations, pushed prices higher again on Tuesday,² and they continued to rise as the week progressed. Last week, Brent crude oil, the international benchmark, reached a high of $107.63 per barrel,³ while West Texas Intermediate reached a high of $104.36 per barrel.⁴

The path forward remains uncertain, and no clear resolution has emerged. In our view, repositioning a portfolio in reaction to geopolitical headlines has rarely improved long-term results. Equity markets illustrate the point. After a 9% peak-to-trough decline in the S&P 500 during the first quarter, stocks staged a substantial recovery. The index is now up more than 12% year to date, and U.S. small-cap stocks, as measured by the Russell 2000® Index, have gained more than 18%.⁵

Economic activity has held up alongside the volatility, supported by continued job growth⁶ and an expansion in manufacturing activity.⁷ Lingering regional risk could weigh on sentiment and add to near-term headline inflation. Even so, we believe resilient economic activity and the corporate earnings backdrop continue to support a constructive longer-term outlook for equities.

2. Producer Prices Rise as Energy Costs Push Wholesale Inflation Higher

Wholesale inflation accelerated in August. The Producer Price Index rose 5.4% from a year earlier, up from 4.8% in July and in line with estimates.⁸ Core producer prices, which exclude the more volatile food and energy components, increased 4.6% year over year, also matching expectations.⁹

Energy prices rose 4.2% during August and made up the bulk of the 1.1% monthly increase in goods prices.⁸ Services prices were considerably more subdued, rising just 0.1% from July.⁸ That composition offers some reassurance, in our view, because services costs tend to be slower to reverse once they climb.

The report nonetheless indicates that wholesale price pressures remain elevated, and higher energy costs introduce another risk to the near-term inflation outlook. Although the readings were broadly anticipated, firmer headline and core figures appeared to reinforce expectations for tighter Fed policy. At Friday’s market close, pricing in federal funds futures markets implied an 89% probability of a rate increase at this week’s meeting.¹⁰ Persistent core inflation and renewed energy pressure could complicate the path back to price stability.

3. Jobless Claims Edge Lower as Labor Market Holds Firm

Weekly labor data continued to point to steady conditions. Initial claims for unemployment benefits declined to 206,000 last week.¹¹ Economists had looked for 205,000.⁹ Continuing claims, which measure the total number of people receiving benefits, were largely unchanged at 1.77 million¹¹ and came in below forecasts of 1.79 million.⁹

Both readings remain low by historical standards.¹¹ Taken together, they suggest that layoff activity is still limited and that workers who lose jobs are finding new positions without prolonged gaps.

A labor market operating at this pace matters for more than employment alone. Steady payrolls support household income, which in turn underpins consumer spending. In our view, that resilience also gives the Federal Reserve more flexibility to keep its attention on inflation rather than growth, a consideration that carries added weight with policymakers meeting this week.

We continue to watch the broader trend rather than any single week. For now, the recent run of claims data has been consistent with a labor market on firm footing.

Looking Ahead

1. Retail Sales – Wednesday, September 16^th
2. FOMC Interest Rate Decision and Economic Projections – Wednesday, September 16^th
3. Initial Jobless Claims – Thursday, September 17^th

Why It Matters

Wednesday’s retail sales report will show whether household demand steadied after July spending fell 0.6%.¹² The Federal Reserve announces its policy decision that same afternoon, along with updated economic projections, with the federal funds target range at 3.50% to 3.75% following the Committee’s July 2026 meeting.¹³ After last week’s firmer producer price data, both the decision and the projections will shape the rate outlook for the rest of the year. Thursday’s jobless claims report then offers the most current read on labor conditions, following last week’s 206,000 initial claims.¹¹ Together, the three releases test whether consumer demand and employment can absorb higher energy costs while the Fed weighs its next move.

For the period ending 9/11/26.
*Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ CNBC, “Oil Prices Rise to 6-Week High After Iran and U.S. Trade Blows, Saudi Aramco Facilities Reportedly Hit,” September 7, 2026, https://www.cnbc.com/2026/09/07/oil-prices-rise-to-6-week-high-after-iran-and-us-trade-blows-saudi-aramco-facilities-reportedly-hit.html
² Reuters, “Houthi Attacks Disrupt Saudi Energy Facilities, Wound 73, Authorities Say,” September 8, 2026
³ FactSet, Brent Crude Oil Spot Price, as of September 11, 2026
⁴ FactSet, West Texas Intermediate Crude Oil Spot Price, as of September 11, 2026
⁵ FactSet, U.S. Equity Index Returns, as of September 11, 2026
⁶ U.S. Bureau of Labor Statistics, The Employment Situation, August 2026
⁷ Institute for Supply Management, Manufacturing PMI Report on Business, August 2026
⁸ U.S. Bureau of Labor Statistics, Producer Price Index News Release, September 10, 2026
⁹ Bloomberg L.P., Economic Calendar (ECO), Median Economist Survey Estimates, accessed September 11, 2026
¹⁰ CME Group, CME FedWatch Tool, accessed September 11, 2026, https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
¹¹¹ U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Weekly Claims News Release, September 10, 2026, https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/20261503.pdf
¹² U.S. Census Bureau, Advance Monthly Sales for Retail and Food Services, July 2026 Advance Estimate, August 14, 2026, https://www.census.gov/retail/sales.html
¹³ Federal Reserve Board of Governors, Federal Open Market Committee Statement, July 29, 2026, https://www.federalreserve.gov/newsevents/pressreleases/monetary20260729a.htm

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