Brent oil has reached a price of $110 per barrel, marking the highest price since May. This price increase is due to a reduced outlook for oil supply and escalating tensions in the Middle East and the conflict between Russia and Ukraine.
Oil Price Increase Due to Regional Tensions
The price of Brent oil has increased by 3.7%, marking the second consecutive week of positive market sentiment. This comes as Houthi forces from Yemen continue their attacks on Saudi Arabia, and the conflict between Russia and Ukraine impacts energy infrastructure.
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The last time oil prices were near this level, global oil flows were severely disrupted, and a fragile agreement had been reached to reopen the Strait of Hormuz. Now, the volume of oil shipments passing through this key waterway has returned to levels close to those before the war, with over 100 million barrels of oil passing through the strait last week.
Challenges Facing the U.S. Government
Despite the increase in shipments, prices remain high, presenting serious challenges for the U.S. government. Donald Trump, the President of the United States, is facing a shortage of options to control energy costs, especially with the midterm elections approaching on November 3.
Energy market analysts believe that the oil market needs to reassess risks at this time. Rebecca Babby, a senior energy trader at CIBC Private Wealth, stated, "After a brief pause, the oil market needs to start pricing in risks again, especially as it heads into the weekend holidays."
Diesel and gasoline futures have also risen, with diesel prices in New York reaching $4.90 per gallon. Contracts for both commodities are currently at their highest historical levels.
American lawmakers also introduced a bill on Friday to prevent Trump's agreement with Moscow to release several hundred million barrels of diesel. Trump has repeatedly emphasized that Moscow will adhere to its agreement to release diesel, but ongoing attacks, such as the recent strike on the Ryazan refinery in Russia, have raised doubts about the implementation of this agreement.
Analysts are closely monitoring developments in the Gulf and believe there is a possibility of escalating conflicts in the region. The Eurasia Group noted, "The likelihood of escalating conflicts has risen to 65%. The current situation is no longer sustainable for the United States."
The U.S. government is also seeking to lower prices by utilizing emergency reserves and lobbying other countries to take similar actions. On Friday, the United States offered up to 17 million barrels from its strategic oil reserves.
Oil prices have increased by more than 75% this year, and wars in the Middle East and Russia have significantly impacted oil supply. Physical markets are also showing signs of tension, with refined products like diesel experiencing even greater increases.
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