The price of Brent crude oil reached $114 per barrel intraday on Friday, a level the commodity last closed at on May 4, when it settled at $114.44 per barrel.
Commenting on oil hitting $114, Tamas Varga, an analyst at PVM Oil Associates, which is part of TP ICAP, noted in a statement sent to Rigzone that “there are visible doubts that the proposed trilateral meeting of the U.S./China/Russia will bring potential peace in Ukraine within reach”, and warned that “reciprocal attacks on energy infrastructure are expected to continue”.
“In the Middle East, renewed strikes on vessels in the Strait of Hormuz… [and a] persistent Houthi threat on Saudi oil installations in the Red Sea more than offset the alleged rise of oil exports out of the region,” Varga added.
“Perhaps more importantly, reports of a potential short but intense attack by the U.S. and Israel on Iran, alongside indications from the U.S. ambassador to the UN that his country might still be involved in the conflict with Iran a year from now, make investors believe that peace in the Persian Gulf remains more elusive than before,” Varga warned.
In an oil market report sent to Rigzone today, analysts at ABG Sundal Collier, including Ole Hvalbye, highlighted that Brent was trading at a “strong ~$114.5 per barrel this morning, up from $105 per barrel last Friday (+$9.5 per barrel week on week)”.
“Yesterday alone it climbed another three percent [and is] now trading at the highest level since 4th of May, while also heading for a third straight weekly gain,” the analysts pointed out.
They noted that the escalation onshore continues, highlighting that Aramco “ordered a full evacuation of its Dhahran HQ yesterday, the first since the conflict resumed in July”. They added that the U.S. “has now ordered the majority (non-essential) of embassy staff + families out of Saudi Arabia (similar approach in UAE, Qatar, Bahrain, and Jordan)”.
The analysts went on to state that a “key market driver” is that the Houthis “are continuing to push towards Bab el-Mandeb”.
“Yanbu/Red Sea, at the end of the East-West pipeline, is Saudi’s ‘lifeline’ around SoH. i.e., the ‘alternative’ outlet is now at increasing risk, which push up prices at the front of the curve,” they said.
The analysts concluded in the report that there are “increased risks left, right, and center in the entire Middle East”, but added that crude is, “for now, ‘technically available’”. They warned, however, that both the Strait of Hormuz and the Red Sea bypass are “under increasing threat (nothing new you might think- correct! But far from optimal)”.
“On top of that, there’s talk of a U..S/Israeli strike on Iran after the 3 Nov midterms. With this in mind, the front end definitely stays bid (as we see in the market), even though surplus is lurking under the surface,” the analysts continued.
Rigzone has contacted the White House, the Israeli Ministry of Foreign Affairs, and the Iranian Ministry of Foreign Affairs for comment on Varga and Hvalbye’s statements. Rigzone has also contacted Aramco for comment on Hvalbye’s statement. At the time of writing, none of the above have responded to Rigzone.
Prices Remain Elevated
In a market analysis sent to Rigzone today, Naeem Aslam, CIO at Zaye Capital Markets (ZCM), highlighted that oil prices “remained elevated” on Friday.
“The market is experiencing heightened volatility as geopolitical tensions increasingly outweigh concerns about weakening global economic activity,” Aslam said in the analysis.
“At Zaye Capital Markets, we observe that President Trump’s declaration that the United States is not negotiating with Iran, combined with his warning that developments could unfold relatively soon, has increased uncertainty surrounding future military action and the security of Middle Eastern energy infrastructure,” he warned.
“Renewed attacks on Saudi Arabian facilities, including infrastructure associated with its energy industry, have intensified concerns about production interruptions and shipping disruptions,” he added.
“Reports of further tanker incidents in the Strait of Hormuz have also increased the risk premium embedded in crude prices,” he continued.
“These developments help explain Thursday’s approximately four percent oil rally to five-month highs, followed by more cautious trading on Friday as investors reassessed the likelihood of immediate supply losses,” he went on to state.
Aslam noted in the analysis that the distinction between actual production disruptions and geopolitical risk remains particularly important.
“Although crude exports from the Persian Gulf have recovered substantially, shipping costs, insurance premiums, refinery disruptions, and continuing threats to regional infrastructure are preventing a sustained normalization of energy prices,” he said.
Aslam projected in the analysis that Friday’s economic calendar “could play an important role in determining whether crude maintains its current premium”.
“U.S. flash manufacturing PMI is forecast at 55.5 against 55.9 previously, while flash services PMI is expected at 58.0 compared with 58.8,” he noted.
“Revised consumer sentiment is projected at 46.3, with updated inflation expectations providing further insight into how households are responding to higher energy costs,” he added.
“Stronger than forecast manufacturing and services activity could support oil through expectations of resilient fuel consumption, although rising inflation expectations may reinforce restrictive monetary policy and ultimately weaken economic demand,” he continued.
“Conversely, weaker economic readings could encourage selling if investors conclude that industrial consumption is deteriorating faster than supply conditions are tightening,” he said.
European manufacturing and services PMIs and UK retail sales will also help determine whether higher energy prices are reducing consumption across major importing economies, Aslam stated, adding that the approaching October 27-28 Federal Reserve meeting adds another important variable, “particularly as sustained oil-price increases could complicate inflation control”.
“We believe Brent’s ability to remain above $110 will depend primarily on developments involving Iran, Saudi energy infrastructure, tanker security, and the pace of global inventory depletion,” Aslam highlighted.
“A further deterioration in Middle Eastern security could expose the $120 per barrel region, while credible diplomatic progress, improving shipping conditions, or evidence of weakening fuel demand could encourage a retreat toward $105-$110,” he said.
“At Zaye Capital Markets, we maintain that supply security and actual energy flows, rather than geopolitical statements alone, will determine whether the current rally develops into a more prolonged period of elevated oil prices,” he went on to state.
USA Midterms
In a market update sent to Rigzone late Thursday, Rystad Energy stated that, with U.S. midterm elections less than three weeks away, “elevated energy prices have become a central economic and political variable”.
“Houthi attacks on Saudi infrastructure, renewed Iranian strikes on commercial shipping in the Strait of Hormuz, and the collapse of the Russia-Ukraine energy truce are sustaining a geopolitical risk premium across crude and product markets,” Rystad said.
“At the same time, September U.S. inflation came in above expectations at 3.7 percent, the federal deficit widened to nearly $2 trillion, and tech stocks sold off sharply as AI financing concerns spread,” it added.
“The picture heading into the midterms is an economy growing at a resilient pace overall but facing mounting pressure on consumers, particularly through gasoline and diesel prices,” it warned.
In this market update, Rystad Energy Chief Economist Claudio Galimberti noted that “high oil and gas prices have been benefiting those sectors of the U.S. economy that contribute to making it the world’s largest oil and gas producer and one of the largest exporters”.
He pointed out that this is a “very different” scenario from 2008, “when oil prices were very high and the U.S. was the world’s largest oil importer”, adding that, “back then, high oil prices would trigger, almost automatically, a recession in the United States”.
Although Galimberti warned that high oil and gas prices are, overall, still a net negative for U.S. economic growth, he outlined that they have “a lower impact than in China or Europe, which are still major oil and gas importers”.
“The U.S. economy grew at 2.5 percent in Q1 and 2.2 percent in Q2, and the impact of the energy crisis on economic growth has so far been very contained,” Galimberti said.
“It’s noteworthy that massive AI investment has contributed significantly to GDP growth in the past two quarters,” he added.
“That is the story heading into the midterms: an economy that is absorbing an energy shock that would have been far more damaging a decade ago, but where consumers are still feeling real pain at the pump and in their household budgets,” he noted.
“The political pressure that creates is real, even if the macroeconomic damage is more limited than in past episodes,” he went on to state.
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