Oil prices surged in early trading Tuesday, as energy markets adjusted to a new normal in the Middle East. The increase in crude prices threatened to drive up the cost of gas in the United States just two weeks before the midterm elections.
U.S. crude prices jumped as much as 5% to about $109 a barrel, the highest price since April, while the price of international Brent crude climbed 1.5% to more than $111, its highest price since May. Prices pulled back later in the morning, after weaker-than-expected U.S. housing starts raised the prospect of a broader slowdown and lower demand.
Prices for advanced oil contracts dated for next year also hit record highs, “implying an extended period of high oil prices deep into 2027,” Deutsche Bank analysts said in a note Tuesday.
“The 2027 contracts are moving higher as well as the possible reality of higher for longer oil prices sink in,” Peter Boockvar, author of the Boock Report and chief investment officer of OnePoint BFG Wealth Partners, said in a note Tuesday.
High gas prices have become a major issue for voters in the midterms, where Republicans face dwindling odds of maintaining their control of Congress.
A recent NBC News poll found that 67% of U.S. adults believe gas prices are a “very serious” or “somewhat serious” problem. A majority also said that current economic conditions have caused them to change their spending habits.
U.S. gasoline prices had started off the week lower. At $4.28 a gallon, the national average price of unleaded was on pace to reach its lowest level in a month.
But that trend is likely to be upended as higher crude prices filter through to the pump.
Several factors were contributing to Tuesday’s oil price hikes.
The cost of chartering a large tanker vessel to transport oil through the Strait of Hormuz has quadrupled since September, data shows.
Much of that increase is a risk premium, both for sailors and insurance. During the past two weeks, at least 18 vessels have been attacked in the strait, the ship-tracking group Kpler said in a note Monday.
The higher cost of transport has begun to offset the recent bump in supply from a growing number of ships moving through the strait.
The Iranian attacks on ships have also prompted investor speculation that the Trump administration will be more likely to escalate against Iran after the midterms, the Deutsche Bank analysts said.
Iran-aligned Houthi rebels also claimed Monday that they had hit airport, energy and military targets in Saudi Arabia, as well as a training camp in Yemen for that government’s security forces.
The U.K. will begin deploying fighter jets over Saudi Arabia to help protect against further Houthi attacks, the Defense Ministry said Tuesday.
The entry of another country’s military into the regional hostilities was taken as a further sign of escalating tensions.