Oil prices rose on Wednesday, recovering losses this week, as more Houthi attacks on Saudi Arabia and the prospect of a renewed US military offensive against Iran kept supply fears elevated.
Brent, the benchmark for two thirds of the world's oil, was up 0.87 per cent at $114.87 a barrel at 2pm UAE time. West Texas Intermediate, the gauge that tracks US crude, added 1.59 per cent to $101.49 a barrel.
Crude prices were up by more than 2 per cent earlier in the session, and are virtually flat for the week after retreating about 1.6 per cent on Tuesday.
Oil remains at multi-month highs as tensions linger in the Middle East. The Saudi-led coalition said it intercepted and destroyed a ballistic missile launched by the Iran-aligned Houthi rebels towards Taif on Wednesday morning.
Before that, the Houthis claimed a drone strike on Abha International Airport, although there was no immediate confirmation of the attack from the Saudi side.
Meanwhile, there are hopes that talks between the US and Iran to end their conflict are progressing. Qatari mediators presented Iran with a new draft deal to end the US-Israeli war on the country, which Tehran is considering and is expected to respond to by the end of the week, an official told Reuters on Wednesday.
Markets are also concerned about the possibility of the US resuming large-scale attacks on Iran. On Sunday, President Donald Trump said he had a “decision to make” on Iran, as talks have yet to yield a deal.
The Wall Street Journal reported that Washington has warned several Gulf Arab countries to prepare for a possible renewed US military campaign against Iran after the November 3 midterm elections.
Iranian Foreign Minister Abbas Araghchi warned that any Israeli-instigated military escalation in the Gulf could have a devastating impact on international markets.
With Middle Eastern crude supply remaining volatile and geopolitical uncertainty persisting, Swiss lender UBS revised its oil price projections upwards, expecting Brent to remain near the $110 level until the end of the year.
“Middle Eastern flows, while improving, have not yet fully normalised,” Giovanni Staunovo, a strategist at the Zurich-based bank, wrote in a note. Global inventories have fallen sharply as pledged strategic oil reserve releases have largely been completed, he added.
“An undersupplied market could push commercial stocks lower and should sustain oil prices. Record freight costs, constrained tanker capacity and recovering Chinese imports are other factors likely to keep oil prices high,” he said.
“Uncertainty around our forecasts remains elevated, reflecting both the unpredictable nature of the Middle East conflict and the pace of recovery in Gulf production and global oil demand.”
Traders are also watching Israel's election, where Prime Minister Benjamin Netanyahu's bloc is in the lead, according to early returns.
