Oil trades near five-month high as Mideast supply risks mount

Brent oil was trading at the highest level since May as attacks on Saudi Arabia intensified and the war with Iran remained unresolved.

The global benchmark traded around US$114 a barrel on Friday, up almost four per cent this week, while West Texas Intermediate was above US$100. Iran-backed Houthi militants claimed recent attacks on the Saudi Red Sea port of Yanbu, as well as deadly strikes on an oil field and airport in the kingdom.

The flareup threatens to widen hostilities around the Strait of Hormuz, where crude exports have recovered to near prewar levels.

At the White House on Thursday, U.S. President Donald Trump told reporters that the U.S. has “knocked” out Iran and threatened to go “a little bit further,” without elaborating. The New York Times reported this week that the U.S. and Israel have developed plans for renewed strikes against the Islamic Republic after the American midterm elections early next month.

Brent is up more than 85 per cent this year because of the U.S.-Iran war, which is now approaching its ninth month. Refined-product prices have risen even faster, most notably diesel. More recently, however, flows through Hormuz have surged, weighing on physical markets even as futures climb.

“One of the most frequent questions during our client meetings was why oil prices remain elevated despite the apparent recovery in Arab Gulf exports,” Citigroup analysts including Francesco Martoccia wrote in a note. “We would caution against extrapolating a few days of stronger flows into a full normalization of exports, as temporary increases may reflect inventory drawdowns or the release of previously hoarded barrels.”

The U.S. is preparing for a protracted conflict with Iran and could still be mired in a stalemate a year from now, Trump’s Ambassador to the United Nations, Mike Waltz, told the Financial Times. The U.S. Navy can maintain its blockade of Iranian ports for the “foreseeable future” and the administration is tightening economic pressure on Tehran, he added.

The Yemen-based Houthis have repeatedly attacked Saudi Arabia in recent months. State-owned Aramco evacuated its Dhahran headquarters on Thursday and asked staff to work from home after an alarm, according to people familiar with the matter. The reason for the alarm wasn’t immediately known.

While crude flows from the Persian Gulf have recovered, oil-product shipments from the region remain constrained. That squeeze, along with intensifying Ukrainian attacks on Russian refineries, has prompted governments to tap stockpiles. Trump is also pushing measures to lower prices ahead of the midterm elections, including a diesel deal with Moscow.

With assistance from Lorelei Smillie