Oil Prices Climb on Middle East Tensions and Supply Risks
Oil prices saw modest gains on Tuesday, driven by geopolitical tensions in the Middle East, which kept a risk premium in the market. Brent crude futures rose by 27 cents, or 0.3%, to $100.59 a barrel, while US West Texas Intermediate crude futures climbed 30 cents, or 0.3%, to $89.73 a barrel.
Despite the tensions, regional crude exports have shown resilience, even surpassing pre-war levels on several days in late September. However, experts caution against calling this a full normalization of supply, as attacks on tankers around the Strait of Hormuz have increased, raising costs and security risks. Gulf oil flows excluding Iran surged to over 81% of pre-war levels in September, led by a recovery in Saudi exports, while Iranian exports fell to zero due to a US blockade.
Easing some supply concerns, G7 countries agreed to release 100 million barrels of diesel and crude from emergency reserves and pledged to refrain from energy export restrictions. Nevertheless, ongoing conflicts between Saudi Arabia and Iran-backed Houthi forces in Yemen continue to fuel supply disruption fears. Saudi-backed Yemeni government forces advanced to retake coastal areas 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 and record-high Gulf-to-Asia shipping rates, are keeping market participants wary of sustained lower prices. Analysts note the tightness in the shipping market highlights another vulnerable aspect of the oil supply chain.