Oil prices surge on Red Sea escalation

LONDON, UNITED KINGDOM (AFP) - Oil prices surged four percent on Friday after US and UK forces launched strikes against Iran-backed Huthi rebels following their attacks on ships in the Red Sea, fuelling worries about a wider conflict in the crude-rich region.

Wall Street opened higher as earnings season got underway in earnest with a slew of banks reporting results and wholesale inflation unexpectedly dipping in December.

JPMorgan Chase's profits dropped in the fourth quarter to $9.3 billion, but that was due to a one-off special levy of $2.9 billion by US regulators after the failures of Silicon Valley Bank and Signature Bank.

Both revenues and operating profits rose.

The bank's share price climbed around 2.5 percent as trading got underway in New York.

Tokyo ended the week with strong gains while European stock markets were higher as traders brushed off data showing that US inflation rose more than expected in December. 

The luxury sector was also in focus after British fashion brand Burberry posted a profit warning, sending its share price sliding more than nine percent at one stage in London.

That fed through to peers, with Gucci-owner Kering losing 2.1 percent in Paris, where LVMH was down 1.0 percent.

The oil market was in sharp focus as US and British forces struck rebel-held Yemen on Friday after weeks of attacks on Red Sea shipping by the Iran-backed Huthis, who say they are acting in solidarity with Palestinians in war-ravaged Gaza.

"The fear in the oil market is that the region is on an unpredictable escalating path, where at some point down the road supply of oil will indeed in the end be lost," noted Bjarne Schieldrop, chief commodities analyst at SEB bank.

He noted that if the allied attacks were unsuccessful in destroying Huthi weapons, and oil tankers need to go around Africa, then up to 80 million barrels will be locked in transit -- sending prices up as much as $5-10 per barrel.

The Huthis have carried out a growing number of strikes on vessels in the Red Sea, a key international shipping route, since the Gaza war erupted in October.

The attacks have affected trade flows at a time when supply strains are putting upward pressure on inflation globally.

After rising more than 4 percent -- with Brent crude rising above $80 per barrel -- oil prices pared gains.

The jump in oil prices sparked concerns about a fresh spike in inflation that could complicate central bank efforts to cut interest rates.

Data out Thursday showed that US consumer price index rose more than forecast in December, dimming prospects that the Federal Reserve would start its rate-cutting cycle in March.

But data out Friday that US wholesale prices defied predictions to edge lower in December last year.

"The key takeaway from the report is that inflation at the wholesale level has been brought under wraps, with deflation appearing in several components, and is expected to translate into friendlier inflation readings for the PCE Price Index that is the Fed's preferred inflation gauge," said Briefing.com analyst Patrick O'Hare.

Investors are keenly waiting for a drop in interest rates, which central banks hiked in 2022 and 2023 in a bid to cool decades-high inflation.

While rates of price rises have slowed, inflation remains above target for the Fed, European Central Bank and Bank of England.

Key figures around 1430 GMT 

Brent North Sea Crude: UP 2.8 percent at $79.55 per barrel

West Texas Intermediate: UP 2.9 percent at $74.10 per barrel

New York - Dow: UP 0.2 percent at 37,778.17 points

New York - S&P 500: UP 0.3 percent at 4,796.33

New York - Nasdaq: UP 0.3 percent at 15,009.02

London - FTSE 100: UP 1.0 percent at 7,649.52

Paris - CAC 40: UP 1.0 percent at 7,463.69

Frankfurt - DAX: UP 1.1 percent at 16,722.51 

EURO STOXX 50: UP 0.9 percent at 4,483.82

Tokyo - Nikkei 225: UP 1.5 percent at 35,577.11 (close)

Hong Kong - Hang Seng Index: DOWN 0.4 percent at 16,244.58 (close)

Shanghai - Composite: DOWN 0.2 percent at 2,881.98 (close)

Euro/dollar: DOWN at $1.0967 from $1.0969 

Dollar/yen: DOWN at 144.61 yen from 145.29 yen on Thursday

Pound/dollar: UP at $1.2771 from $1.2770 

Euro/pound: DOWN at 85.91 pence from 85.94 pence