Iran War Keeps Oil Near $85 as July Jobs Report Looms

The Strait of Hormuz closure has pushed U.S. crude near $85 a barrel and gasoline past $4 a gallon, making Friday's July jobs report the next test for markets.

U.S. stock and oil futures opened the new month under the shadow of the Iran war, with benchmark crude near $85 a barrel and traders awaiting the July jobs report for signals on Federal Reserve policy.

"What we're trying to understand is to what extent are these shocks broadening in their effects, broadening in their impact on prices that are quite far removed from it," Fed Chairman Kevin Warsh said after the central bank's July 29 meeting.

The Fed voted 9-3 to hold the federal funds rate at 3.50%-3.75%, with Cleveland's Beth Hammack, Minneapolis' Neel Kashkari and Dallas' Lorie Logan dissenting in favor of an immediate quarter-point hike. Futures markets priced a better-than-even chance of a September increase, while the 30-year Treasury yield climbed about 11 basis points to 5.21%, its highest since 2007.

The July jobs report, due Friday, will determine whether the hawkish hold becomes a hike. A strong reading would reinforce the three dissents and pressure risk assets, while a weak number — after June's 57,000 payroll gain — could cool September odds and support equities.

The war's toll on prices has spread well beyond the pump. Companies from Sherwin-Williams to Boston Beer have told investors they are raising prices to offset higher commodity and freight costs tied to the Strait of Hormuz closure, which carried roughly 20 percent of the world's oil supply before the conflict. Benchmark U.S. crude traded around $85 a barrel on Friday, up about 25 percent since the war began, while the national average for a gallon of regular unleaded gasoline stood at about $4.11, up from $2.98 at the start of the conflict. Diesel has surged above $5 a gallon.

Sherwin-Williams said it would raise prices 8 percent effective Sept. 1 to offset rising materials costs, sending its shares up more than 8 percent Tuesday, their biggest one-day gain in more than four years. Lamb Weston, the Idaho french-fry maker, raised prices in North America as higher crude lifted transportation costs and spilled into edible oils, which biodiesel producers are consuming. Boston Beer, brewer of Samuel Adams, said costlier commodities including aluminum partially offset price increases last quarter. Packaging costs have become especially acute: all three of the largest U.S. box makers — International Paper, Smurfit Westrock and Packaging Corp. of America — announced price increases in quick succession in July.

The strain is showing in consumer confidence. The Conference Board's gauge fell 1.4 points to 90.8 in July, with an indicator of present conditions dropping to its lowest since 2021 as elevated gasoline and food prices weighed on households. The share of consumers who said jobs were plentiful declined to 24.6 percent, and the gap between those seeing jobs as plentiful and those seeing them as hard to get narrowed to the smallest since 2021.

The last time the Fed faced a similarly divided vote was September 2016, when three officials dissented against a hold — a prelude to a hike later that year. If July payrolls come in strong, the September meeting could follow a similar path, with the 30-year yield already at levels not seen since 2007. If the labor market softens, the energy-driven inflation shock may prove transitory, giving the Fed room to hold. Either way, the price increases now rippling through beer, paint and french fries mean the cost of living will remain a political and market flashpoint into the autumn midterms.

This article is for informational purposes only and does not constitute investment advice.