Brent crude topped $100, sending energy stocks up 12% and the dollar to 163 yen. The 2-year yield hit 4.35% as rate hike bets increased. Refiners Marathon and Phillips 66 led.
Brent crude oil rose above $100 a barrel Thursday, its fifth straight daily gain. The move pushed energy stocks to a 12% monthly gain. The 2-year Treasury yield climbed to 4.35%, the highest since February, and the dollar hit 163 yen, its strongest since 1986.
Houthi militants attacked two Saudi oil tankers in the Red Sea, the first direct strikes on tankers in the strategic waterway. The attack followed the collapse of U.S.-Iran diplomatic talks and raised fears of broader supply disruptions beyond the Strait of Hormuz.
Higher oil prices feed into inflation expectations, which complicates the Federal Reserve's policy path. Fed funds futures now imply a 35.8% chance of a rate hike at the July 29 meeting, up from near zero a month ago, according to CME FedWatch. By January 2027, the market prices a 96.8% probability of rates at 4.00%–4.25%, up from the current 3.50%–3.75% target range.
Two-year yields rose 12 basis points to 4.35%. Longer-dated yields moved less, steepening the curve.
Energy stocks were the biggest equity beneficiaries. The Energy Select Sector SPDR Fund (XLE) gained 12% month-to-date, while the S&P 500 was flat. The 3-2-1 crack spread, which measures refinery margins, hit a record near $70 a barrel, boosting profits for independent refiners.
Marathon Petroleum (MPC) rallied 23% in July. Phillips 66 (PSX) gained 25%. HF Sinclair (DINO) rose 30%. Phillips 66 carries an Alpha Score of 66 on AlphaScala, classified as Moderate. Marathon scores 61, also Moderate. The SPDR S&P 500 ETF (SPY) has a Mixed score of 38.
Two forces drove the dollar to 163 yen. The first is the widening interest-rate differential as U.S. yields rise relative to Japan's. The Bank of Japan has kept its policy rate at 0.5%, far below the Fed's 3.50%–3.75% range. The second is the oil import bill: Japan is the world's third-largest crude importer, and each $10 rise in oil adds roughly 0.3% to its annual import costs, according to trade data. Higher costs weigh on the yen.
The dollar index rose 0.4% on the session, pushing the yen to 163, its weakest since 1986.
U.S. CPI data for June is due July 13.
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