Oil prices remain highly volatile as investors weigh the prospect of progress in US-Iran negotiations against the continuing risk of supply disruption in the Middle East.
Brent crude was trading around US$104 a barrel on Wednesday after falling sharply earlier in the week as diplomatic efforts raised hopes that the conflict could de-escalate.
The benchmark had fallen to around US$103.60 at Tuesday’s close before recovering as uncertainty surrounding negotiations persisted.
Qatar has been mediating discussions between Washington and Tehran, although the two sides remain some distance apart.
The result is a market moving rapidly on each diplomatic or military headline.
For Australia, oil prices remain particularly important because elevated energy costs are feeding into inflation just as the RBA attempts to slow domestic price pressures.
Governor Michele Bullock acknowledged that global oil prices were contributing to higher inflation forecasts, although she stressed the central bank could not influence international energy prices.
For equities, sustained oil prices above US$100 present a mixed picture.
Energy producers can benefit from stronger realised prices, while airlines, transport operators and energy-intensive businesses face increased costs.
Consumers are also exposed through higher fuel prices, adding another constraint on household spending as interest rates rise.
