Oil Prices Climb as Middle East Risks Keep Market on Edge

Oil prices saw modest gains on Tuesday, driven by ongoing security concerns in the Middle East that maintained a geopolitical risk premium. Brent crude futures climbed 27 cents, or 0.3%, to $100.59 a barrel, while US West Texas Intermediate (WTI) crude futures rose 30 cents, or 0.3%, to $89.73 a barrel. Despite resilient crude exports from the region and a G7 emergency stockpile release easing some supply concerns, the market remains cautious due to persistent risks.

Priyanka Sachdeva, head of market insights at Phillip Nova, noted that while shipping data shows regional crude exports occasionally exceeding pre-war levels, the situation is far from normalized. Recent attacks on tankers around the Strait of Hormuz have increased, keeping costs, insurance, routing, and security risks elevated. Gulf oil flows excluding Iran surged to over 81% of pre-war levels in September, primarily due to a recovery in Saudi exports, while Iranian exports dropped to zero due to a US blockade.

To further ease supply concerns, G7 countries agreed to release 100 million barrels of diesel and crude from emergency reserves and pledged to avoid energy export restrictions. However, the conflict between Saudi Arabia and Iran-backed Houthi forces in Yemen continues to raise concerns about potential supply disruptions. Saudi-backed Yemeni government forces recently advanced to retake the coast around the Bab el-Mandeb Strait, prompting Houthi attacks on key Saudi locations, including an Aramco refinery in Rabigh.

Other market factors, such as low oil inventories, are also keeping participants skeptical about sustained lower prices. Vivek Dhar, an analyst at Commonwealth Bank of Australia, highlighted that Gulf to Asia shipping rates have reached new record highs, underscoring the tightness in the shipping market and the oil supply chain's sensitivity to disruptions.