Crude Oil Surges Past $117 on Middle East Supply Fears, Fed Decision in Focus

Crude oil prices are heading into another volatile week, with Brent crossing $117 a barrel as escalating Middle East tensions revive supply fears and the US Federal Reserve’s monetary policy decision looms, analysts said.

Brent futures for December delivery climbed $7.52, or nearly 7%, over the past week to settle at $117.38 per barrel on the Intercontinental Exchange, according to data cited by Business Standard. West Texas Intermediate (WTI) futures for the same month advanced $4.25, or 4.3%, to settle at $103.27 per barrel on the New York Mercantile Exchange.

The rally has been fueled by a series of threats to energy infrastructure and key shipping lanes. Attacks by Yemen-based Houthi forces in Saudi Arabia intensified concern over the security of the world’s largest oil-exporting region, multiple sources reported. Houthi attacks on Saudi infrastructure, alongside threats to critical shipping routes, sustained the geopolitical risk premium, according to Business Standard.

An oil spill from a tanker off the coast of Umm Al Quwain in the United Arab Emirates added to market uncertainty, as reported by Economic Confidential. The UAE authorities did not identify the vessel involved or establish the cause. Separately, Saudi Aramco ordered the evacuation of its headquarters in Dhahran on Thursday amid intensified fighting between Saudi Arabia and Yemen-based Houthi forces, Economic Confidential reported.

The Strait of Hormuz remains a flashpoint. Any disruption to energy infrastructure or shipping through the strait could drive crude toward $120 per barrel, while credible de-escalation could trigger a sharp correction, said Ajit Mishra, SVP – Research at Religare Broking, as quoted by Business Standard.

Adding to unease, Business Standard reported that the US and Israel had drawn up plans to target Iranian energy infrastructure, including nuclear facilities near Natanz, after the US mid-term elections on November 3. Iran later warned of repercussions, further stoking market anxiety. This single-source claim was attributed to Business Standard.

Supply-side interventions have failed to reverse the rally. The International Energy Agency’s readiness for further strategic stock releases, the G7’s additional 100 million barrels (largely an acceleration of an existing programme), and the first Russian diesel cargo bound for the US have not been enough, Business Standard noted. “The market is increasingly focused on whether these developments can deliver meaningful additional supply, rather than on announcements alone,” said Navneet Damani, Head of Research – Commodities at Motilal Oswal Financial Services Ltd, as quoted by the outlet.

Soaring freight costs are compounding the price pressures. Transporting about two million barrels of crude from the United States to Japan aboard a very large crude carrier is expected to cost approximately $81 million in late November, compared with an average of $9.1 million for a similar voyage last year, according to reports cited by Economic Confidential. That translates to about $40.50 per barrel, roughly nine times the cost a year earlier. Earlier this month, chartering a very large crude carrier to move two million barrels of US crude from the Gulf of Mexico to China had reached about $80 million, Economic Confidential reported.

Higher shipping charges are altering trade flows. Asian refiners are considering alternative supplies from the Middle East and Latin America as the economics of US crude imports deteriorate, Economic Confidential said. Elevated freight costs, constrained regional shipments, and persistent security threats continue to undermine export reliability, Damani noted to Business Standard.

The US Federal Reserve’s October 27-28 Federal Open Market Committee meeting will test oil prices further. Investors will assess how policymakers view inflation amid rising energy costs. “A hawkish tone could strengthen the dollar and weigh on demand-sensitive commodities, although supply disruptions may limit crude’s downside,” Mishra told Business Standard.

The implications for economies are growing. In India, a prolonged spell of elevated crude prices could mean mounting pressure on the rupee, inflation, the current account, and corporate margins, Mishra said, as reported by Business Standard. In Nigeria, sustained increases in international oil and shipping costs could add to domestic fuel-price pressures, Economic Confidential noted.

Analysts caution that the near-term bias remains bullish but highly headline-driven. “Traders should avoid chasing sharp rallies and monitor geopolitical developments, Fed guidance and weekly inventory data for directional confirmation,” Mishra said, as reported by Business Standard. The American Petroleum Institute and the US Energy Information Administration are due to release their weekly stock estimates, with Cushing crude inventories also in focus.

Brent had earlier reached $115.16 per barrel on Friday, its highest level since May 4, according to Economic Confidential, and was on course for a 4.4% weekly gain, its third consecutive weekly increase. WTI, however, was set to end the week 0.4% lower. The balance of risks continues to favor the upside, though credible progress toward de-escalation could still trigger sharp profit-taking, Damani said.