London (AFP) - Oil prices surged Thursday as advances by Yemeni rebels threatened the flow of oil supplies, fanning inflation fears that saw the European Central Bank lift its key interest rate, bond yields rise and stock prices drop.

The benchmark US oil contract, West Texas Intermediate, jumped above $100 a barrel Thursday after Yemen’s Houthis seized control of the strategic Red Sea port city of Mocha on Thursday.

The international benchmark Brent crude soared five percent to past $106 a barrel, hitting its highest level since May.

A Yemeni military source told AFP that the Iran-backed Houthis were advancing towards the strategic Bab al-Mandab strait, the waterway which links Asia to Europe via the Red Sea and Suez Canal, which would make it easier for them to disrupt Saudi shipping.

“This poses a further threat to global energy supplies,” said Kathleen Brooks, research director at XTB.

The waterway has gained importance as a transit route since the start of the wider Middle East war, which saw Iran blockade the Strait of Hormuz, as Saudi Arabia has shifted to exporting a portion of its production via the Red Sea.

A report from the OPEC oil cartel also indicated Saudi oil production fell 30 percent from July to 6.2 million barrels per day in August.

Iran has recently stepped up attacks on ships trying to pass the Strait of Hormuz chokepoint, reducing flows that had picked up during the summer, and raising the prospect of supply disruptions well into the Northern Hemisphere winter.

Rystad Energy analyst Jorge Leon told AFP that around eight million barrels per day were flowing through the strait during the last week of August, but “these past days the flow has dropped to around to under two million barrels per day, closer to 1.5 million barrels per day.”

Worries of a long Middle East conflict snarling Gulf tanker traffic rose after US President Donald Trump said Wednesday that the war would conclude after the mid-term elections in November – much longer than many investors have been hoping.

“The surge in the oil price is having a pass through effect on the bond market, and sovereign bonds are selling off sharply,” added Brooks.

US government bond yields – which move inversely to prices – also rose as accelerating wholesale inflation data in the United States compounded worries that price increases are running too hot for central bank comfort, raising chances that the Federal Reserve will hike rates in turn next week.

Data showed that the US producer price index climbed 5.4 percent in August, up from 4.8 percent in July, as high energy costs are driving up the costs of manufacturers.

“With the PPI data overall still looking relatively hot, the Fed seems likely to hike this year even if it doesn’t pull the trigger this month,” said Stephen Brown, chief North America economist at Capital Economics.

Wall Street indexes fell across the board, with European markets also down after widespread losses across Asia.

Consumer prices data to be released tomorrow will provide further guidance on whether the Fed will raise rates at next week’s meeting – despite Trump’s insistence that rates should be much lower for the world’s biggest economy.

The ECB raised its benchmark rate to 2.5 percent Thursday while warning that inflation “is set to remain well above target for an extended period”.

Many investors took that as a sign of further tightening to come, which could dampen growth across the eurozone, especially as the ECB raised its forecasts for both inflation and growth.

- Key figures at around 1530 GMT -

Brent North Sea Crude: UP 5.0 percent at $106.26 per barrel

West Texas Intermediate: UP 4.8 percent at $100.63 per barrel

New York - Dow: DOWN 0.4 percent at 52,149.70 points

New York - S&P 500: DOWN 0.4 percent at 7,606.08

New York - Nasdaq Composite: DOWN 0.4 percent at 26,139.72

London - FTSE 100: DOWN 0.6 percent at 10,608.92

Paris - CAC 40: DOWN 0.5 percent at 8,116.76

Frankfurt - DAX: DOWN 0.8 percent at 25,361.15

Tokyo - Nikkei 225: UP 0.2 percent at 65,270.95 (close)

Hong Kong - Hang Seng Index: DOWN 1.3 percent at 24,954.47 (close)

Shanghai - Composite: DOWN 0.4 percent at 3,934.40 (close)

Euro/dollar: DOWN at $1.1625 from $1.1629 on Wednesday

Pound/dollar: DOWN at $1.3527 from $1.3544

Euro/pound: UP at 85.96 pence from 85.86 pence

Dollar/yen: UP at 154.03 yen from 153.65 yen

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