Oil prices swing as US weighs military action against Iran

Oil futures settled down almost US$2 a barrel on Tuesday, October 27, as Middle East talks helped ease some supply worries, though prices stayed near six-month highs because shipping around the Middle East remained disrupted. Brent crude fell US$1.93, or 1.67 percent, to settle at US$113.88 a barrel, while US West Texas Intermediate crude dropped US$1.86, or 1.83 percent, to US$99.90.

On Wednesday, oil ticked up as traders weighed whether the United States and Israel would resume military strikes on Iran. Brent rose 1.3 percent to settle above US$115 a barrel, while West Texas Intermediate closed near US$103. After settlement, crude erased some gains, with Brent briefly trading below US$114 a barrel, on renewed hopes for progress toward ending the months-long conflict.

“The market is pricing in a larger probability of re-escalation.”

The United States has told several Persian Gulf nations to prepare for a short, intense military campaign targeting Tehran, according to The Wall Street Journal, heightening concerns about supply from the region. US Vice President JD Vance has reached out to Iranian hardliner Mohsen Rezaei, secretary of Iran’s top security body, in an effort to revive peace negotiations.

Iranian state media said Supreme Leader Ayatollah Mojtaba Khamenei met Mohsen Rezaei on Tuesday, a day after Rezaei held talks with representatives of Saudi Arabia, Turkey and Pakistan. State media added that Khamenei emphasised the importance of pursuing Iran’s interests and maintaining its conditions for ending the war.

Yemen’s Iran-aligned Houthis renewed attacks on Saudi Arabia, saying on Tuesday they had struck Saudi Arabia’s Ras Tanura oil refinery, the biggest in the kingdom, with a ballistic missile. October was the worst month for attacks on commercial shipping in the Strait of Hormuz and nearby waterways, according to data compiled by the Washington Institute for Near East Policy.

Traders are also parsing results from two key votes that will help dictate the path forward in the Iran conflict and wider Middle East violence: US midterms next week and last night’s election in Israel. Israel’s Prime Minister Benjamin Netanyahu was edging past opposition leader Gadi Eisenkot, but with more than 90 percent of votes counted, neither had a clear path toward forming a government.

Analysts said continued Houthi attacks on Saudi Arabia and the expanding military presence in the Gulf are keeping supply risks in place, even as diplomatic headlines encourage some of the recent premium to unwind. UBS said risks are likely to become more acute if US naval support wavers, while ING Groep said the market is pricing in a larger probability of re-escalation.