Oil prices advanced following a report that the White House instructed the Pentagon to prepare strike options against Iran that could be carried out before the midterm elections, and as a hurricane prompted some US production to be shut in.
Brent crude rose above $104 per barrel, while West Texas Intermediate traded at $91.68.
The report titled "Trump Might Order Another Iran Strike Before the Midterms" referenced two administration officials and contradicts the common expectation that President Donald Trump would avoid intensifying the conflict with Tehran ahead of next month's polls.
The scope and targets of the potential strikes, as well as whether the administration will move forward, remain under discussion, according to The Atlantic. A limited operation could be followed by more significant action after the midterms, the report added.
In the meantime, producers in the Gulf of Mexico shut in more than Tropical Storm Isaias Shuts 25% of Gulf Oil Production: MMA of crude output — roughly a quarter of the region's supply — in response to an approaching tropical storm, which later strengthened into a *ISAIAS BECOMES A HURRICANE :NHC. Isaias was expected to approach the northern Gulf Coast on Friday night.
Bloomberg's Stuart Livingstone-Wallace discusses escalating clashes between Houthi forces and the Saudi-led coalition around the Bab el-Mandeb strait. He explains how recent Houthi strikes on key Saudi targets represent a renewed security challenge that is pushing oil prices higher. Source: Bloomberg
Crude has surged sharply this year as the US-Iran conflict reduced exports and damaged infrastructure, depleting inventories and contributing to a pickup in global inflation. While the pace of energy shipments from the Middle East has increased in recent weeks, there has also been a surge in attacks on vessels.
Recent incidents included a strike against a tanker off Qatar, with casualties reported, according to UK Maritime Trade Operations. The vessel was hit north of Madinat ash Shamal, at the emirate's tip, in the first reported attack on a ship deep within the Persian Gulf in about a month.
In the US, speaking at a campaign rally in San Antonio, Texas, President Trump reiterated he *TRUMP: DON'T THINK IRAN DEAL IS SOMETHING I WANT TO DO to sign a deal with Iran.
US Central Command — which oversees Washington's military operations in the region — said 20 million barrels of crude oil were flowing through the Strait of Hormuz, according to a social-media post, without giving a timeframe. That equals the daily volume before the conflict, although it's above estimates given by some Vitol CEO Hardy Says 12 Million Barrels/Day Crude Leaving Hormuz at a conference this week.
"Flows from the Middle East have recovered, but constrained product supplies, extreme logistics costs and a high risk of Iranian escalation are keeping prices elevated," said Saul Kavonic, senior energy analyst at MST Marquee.
Elsewhere, Iran-backed Houthis struck two airports in Saudi Arabia, killing three people as the group intensifies its attacks on the kingdom, while also fighting Riyadh-backed forces in Yemen. In retaliation, the Saudi-led coalition said it had destroyed 82 targets in Saada, Hodeida, Jawf and Marib.
The region-wide risks, strikes against vessels, and demand for crude from more-distant loading points, are driving a historic freight rally, adding huge costs to the supply chain. Hiring a very large crude carrier to move US oil to Asia now costs $77 million, up from an average of $9.2 million last year.
Freight costs are "sky-high," Citigroup Inc. analysts including Eric Lee said in a note. "The market continues to price tightness, supply fragility and geopolitical risk rather than simply the headline export numbers."
In the US, official data showed total Crude, Fuel Exports Return to Seasonal Record: EIA Takeaways hit the highest since May last week, returning to a seasonal record and highlighting strong overseas demand. Oil stockpiles dropped 3.2 million barrels.
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