Oil prices hit a five-month high on Tuesday after Yemen's Iran-backed Houthis continued their attacks on Saudi Arabia, further stoking supply fears and higher inflation that could prompt interest rate hikes.
Brent, the benchmark for two thirds of the world's oil, was trading up 1.52 per cent at $111.30 per barrel at 2.27pm UAE time. West Texas Intermediate, the gauge that tracks US crude climbed 2.30 per cent to $100.80 a barrel.
Crude prices were last at these levels in mid-May. On Friday, Brent hit $110 for the first time since May, while WTI topped $100 for the first time in a month.
The Houthis claimed further strikes on Saudi energy, airport and military targets on Monday, escalating tensions in the region and bringing down stock markets in the Gulf.
That was after the rebels claimed to have carried out six attacks on the kingdom, which included strikes on King Khalid International Airport in Riyadh, a military airbase near Abha International Airport, and naval task-force camp and a Saudi radar in Bir Askar.
With the US-Iran conflict, crude supplies out of the Middle East remain choked, prompting moves to ensure ample supplies globally. The International Energy Agency last week said it had agreed to release more than 20 million barrels of diesel to the market amid a surge in diesel prices.
Gulf oil producers, meanwhile, have pushed tanker transfers as far as India’s coast and slashed prices to keep crude flowing to Asia, as the makeshift export network around the Strait of Hormuz buckles under congestion and persistent attacks.
The conflicts have kept energy prices elevated and towing inflation upwards, which, in turn, is growing the likelihood of another interest rate hike from the US Federal Reserve, which is scheduled to meet next week. Analysts are now expecting a second straight increase as Fed officials seek to tame inflation.
"Brent crude hovering near five-month highs following geopolitical tensions in the Middle East has reignited fears of sticky inflation," analysts at US energy company Duncan Oil said.
"Surging energy costs have led investors to believe the Fed will keep interest rates higher for longer to tame inflation."
Movement at the Strait of Hormuz, which, before the war, welcomed a fifth of the world's energy exports, remains under pressure.
However, US Energy Secretary Chris Wright said on Monday the US is willing to allow oil tankers under sanctions to begin a process to legitimately ship crude.
Analytics firm Kpler said easing sanctions on the shadow fleet would have little effect on record freight rates. It estimated that, as of Monday, only 24 of the nearly 160 vessels under sanctions from the Treasury Department's Office of Foreign Assets Control could return to mainstream trade after taking into account their age and ownership restrictions.
Wholesale diesel, meanwhile, already surpassed $200 per gallon in Singapore and hit roughly $220 in Europe and the US, the Paris-based IEA said last week.