Europe midday: Rising oil price sparks rate hike jitters

(Sharecast News) - European shares fell on Wednesday as oil prices crept higher amid renewed attacks from Iran on neighbouring states and shipping in the vital Strait of Hormuz, sparking inflationary fears as the European Central Bank warned interest rates could rise to counter rising inflation caused by the war.

The pan-regional Stoxx 600 index was down 0.88% to 600 at 1207 GMT with all major bourses following suit. Germany's DAX fell 1.27%, France's CAC 40 was 0.83% lower, the UK's FTSE 100 declined 0.91%, Italy's MIB by 1.02% and Spain's IBEX 0.57%.

ECB governing council member Peter Kazimir told Bloomberg in an interview that while the ECB was in a "good place" and there' was no need to act at next week's policy makers' meeting, he was worried that businesses and workers, still feeling the impact of the rise in prices cause by Russia's invasion of Ukraine, would move quickly to recover losses through higher prices and improved wages.

"The balance of risks regarding inflation has clearly shifted to the upside. We can forget about all the discussions about an inflation undershoot," he said.

Oil prices fell sharply overnight then rose again after a report in the Wall Street Journal first stated the International Energy Agency was proposing the largest release of oil reserves in its history before news broke early on Wednesday that three vessels had been struck by "projectiles" while traversing the strait.

A separate report by the Reuters news agency, citing unnamed sources, said the IEA release would be 400m barrels of oil spaced over at least two months, while Spain's energy minister said countries would have up to 90 days to release that volume.

Attempts to calm the markets weren't helped by US Energy Secretary Chris Wright, who posted, inaccurately, on social media on Tuesday that the US Navy had successfully escorted an oil tanker through the strait, only to later delete the post with the department laying the blame on an unnamed staff member.

At 1158 GMT benchmark Brent crude had risen 3.62% to $90.98 while US West Texas Intermediate was up 3.54% to $86.40. Both are still significantly higher since the war started on February 28.

"The [IEA] announcement is helping keep oil prices in check this morning, but the Middle East is now pumping less oil - around 6% less - in reaction to the Iran war. The duration of the conflict will determine whether the spike in oil prices is over, or whether there is more to come," said Swissquote bank analyst Ipek Ozarkdeskaya.

"Oil prices have therefore become the most important ingredient of market sentiment. If the war ends and the worst - in terms of an energy price spike - is behind us, investors could return to a more constructive mode. But uncertainties loom, and there is a chance that the Iran war will not be done and dusted quickly."

In economic news, German inflation dipped marginally in February, official data showed, in line with expectations.

According to Destatis, the Federal Statistics Office, the consumer price index was up 1.9% year-on-year, confirming the provisional estimate and consensus. The print compares to January's 2.1% rate and the 1.8% seen in December.

Month-on-month CPI rose 0.2%.

On the equities front, German arms maker Rheinmetall fell despite reporting full-year sales of �9.94bn and profits of �1.68bn and saying it was in "prime position" to help the US replenish missile stockpiles being used in the war with Iran.

Gerresheimer tanked after the German medical products maker on Tuesday further deferred the release of 2025 financial statements to June, citing probes into its business deals.

Reporting by Frank Prenesti for Sharecast.com