Brent settles at over $100 a barrel as Middle East conflict intensifies

A tanker carrying about 2 million barrels of Iraqi fuel oil was struck by a drone in Iraqi territorial waters on Wednesday, port officials said, while UKMTO, a British navy-linked agency, reported that several merchant vessels in the Gulf had been hit by disabling fire overnight. A seafarer was killed in an incident involving the Gibraltar-flagged oil products tanker Hercules Star while at anchorage off Dubai, the vessel's charterer, Peninsula, said on Wednesday. "The key risk is whether the recent attacks on oil tankers lead to fewer ship-to-ship transfers taking place in the Gulf of Oman, which have so far played a key role in providing oil to global markets and keeping a lid on prices," said Hamad Hussain, senior climate and commodities economist at Capital Economics. Attacks by Iran-backed Houthis on Saudi energy facilities this week have also set oil installations ablaze, threatening a significant expansion of the conflict. The attacks also threaten crude shipments via the Red Sea, which has been a key alternative route to the Strait of Hormuz. "Houthi attacks on Saudi energy facilities have widened the threat further, raising concerns that disruption could spread beyond Iranian supply to the infrastructure and alternative routes that have helped keep Gulf crude flowing," said Daniela Hathorn, senior market analyst at Capital.com. The U.S. Energy Information Administration raised its oil price forecasts for this year and next year on Wednesday, as global stockpiles fall rapidly under pressure from the loss of Middle Eastern supply due to the war. In the physical crude oil market, the dated Brent oil benchmark, against which roughly two-thirds of supply is priced, has been above $100 per barrel since September 3, according to LSEG data. Meanwhile, consumers have been paying the equivalent of more than $100 a barrel for their oil in the form of refined fuels such as gasoline and diesel for most of this year, as the conflict created a global refining crunch that sent fuel prices soaring even relative to crude. U.S. gasoline prices are currently averaging about $4.22 a gallon, while diesel prices are at a record, and closing in on $6 a gallon. "The move towards and back above $100 Brent is reflecting a market that increasingly has to change its view on how long the Middle East crisis will continue to curb supply from the region," said Ole Hansen, head of commodity strategy at Saxo Bank. Futures prices are moving closer to physical crude and fuel markets, where the reality of tight supply has been apparent for the bulk of the conflict. Since the Iran war began on February 28, Brent has surged as high as $126.41 a barrel, a peak reached on April 30, but it had only briefly touched $100 a barrel in late July after retreating below that threshold in late May. Shipping volumes through the Strait of Hormuz remain far below their pre-war peak. That artery was responsible for transiting about one-fifth of the world's oil and gas supply, making it key to worldwide energy trade. "The near-term fundamentals have suddenly turned to much tighter supplies, and the back and forth strikes from the U.S. and Iran look to now be a mainstay, with any chance of a peace agreement moving further out in the distance," said Dennis Kissler, senior vice president of energy trading at BOK Financial. The attacks once again raised concerns about attempting to use the strait. Six commodity vessels passed through it on Tuesday, down from nine a day earlier and below the 10-day average of about 12, preliminary Kpler shipping data showed. In the week before a resumption of fighting on August 30, roughly 8 million to 9 million barrels per day had flowed through the strait, double the previous week's volume, according to Claudio Galimberti, chief economist at Rystad Energy. More recently, flows have fallen below 2 million bpd. Brent crude futures breached $100 a barrel on Wednesday to settle at their highest close since late May after Iran and the U.S. struck tankers in the biggest wave of attacks on shipping since the war began, threatening to worsen the disruption of energy supplies from the Middle East. Front-month Brent crude futures LCOc1 settled up $3.29, or 3.4%, at $101.21 a barrel, after touching a high of $101.58. U.S. West Texas Intermediate crude CLc1 was up $3.02, or 3.25%, at $96.05 a barrel. Both benchmarks closed at their highest since May 22. Since late May, oil benchmarks have generally traded well below the $100-per-barrel psychological threshold, reflecting expectations that the conflict would remain on a low simmer. Optimism rose in particular after the U.S. and Iran came to a temporary agreement to cease attacks, even though a permanent peace deal has not been reached. That calculus has been shifting with the resumption of strikes. Iran said on Wednesday it had attacked 10 ships near the Strait of Hormuz, and the U.S. sank five Iranian oil tankers, in a sharp escalation of the six-month war.

Brent settles at over $100 a barrel as Middle East conflict intensifies

Further attacks widen the conflict beyond Iran

Physical oil and fuel prices remain above $100

Supply risks mount around the Strait of Hormuz

Brent and WTI settle at highest levels since May 22

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