Crude Settles Above $117 as Middle East Supply Fears Collide With Freight Surge

Brent crude settled above $117 a barrel, capping a volatile week driven by escalating Middle East tensions, supply-security concerns and sharply higher tanker freight costs, with investors now bracing for a US Federal Reserve policy decision and weekly inventory data.

Brent for December delivery climbed $7.52, or nearly 7%, over the past week to settle at $117.38 a barrel on the Intercontinental Exchange, while West Texas Intermediate advanced $4.25, or 4.3%, to $103.27 a barrel on the New York Mercantile Exchange, according to a Business Standard report. Deccan Herald reported Brent settled near $117 a barrel as supply fears drove markets ahead of the Fed decision and key inventory releases.

Analysts describe the near-term bias as bullish but highly headline-driven. "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," said Ajit Mishra, Senior Vice President - Research at Religare Broking, in the Business Standard report.

Supply Security in Focus

Attention has centred on the Strait of Hormuz, threats to energy infrastructure and attacks on Saudi targets. Business Standard reported that Houthi attacks on Saudi infrastructure, escalating US-Iran tensions and threats to critical shipping routes were sustaining the geopolitical risk premium.

In a separate report, Economic Confidential said concerns were heightened by attacks in Saudi Arabia, an oil spill reported off the coast of the United Arab Emirates' Umm Al Quwain, and Saudi Aramco's evacuation of its headquarters in Dhahran as fighting intensified between Saudi Arabia and Yemen-based Houthi forces. Economic Confidential noted the oil spill's cause had not been established.

"Although crude flows through Hormuz have shown some recovery, elevated freight costs, constrained regional shipments and persistent security threats continue to undermine export reliability," said Navneet Damani, Head of Research - Commodities at Motilal Oswal Financial Services Ltd, in the Business Standard report. He added that with physical supply yet to normalise, the risk premium remained elevated and the balance of risks favoured the upside.

Business Standard reported that any disruption to energy infrastructure or shipping through the Strait of Hormuz could drive crude toward $120 a barrel in global markets, while credible progress toward de-escalation could trigger a sharp correction.

Freight Costs Reshape Trade

Rising shipping costs are adding a separate layer of pressure, even when supplies are available. Economic Confidential reported that shipping about two million barrels of crude from the US to Japan aboard a very large crude carrier could cost approximately $81 million in late November, versus an average of $9.1 million for a similar voyage last year — translating to about $40.50 per barrel, roughly nine times the year-earlier figure.

Earlier this month, chartering a very large crude carrier to move two million barrels of US Gulf of Mexico crude to China had reached about $80 million, putting pressure on the economics of supplying Asian refiners with American oil, Economic Confidential reported. The report said higher freight, insurance and geopolitical costs were shifting trade flows, with Asian refiners considering alternative supplies from the Middle East and Latin America.

Supply Interventions Fail to Cool Rally

Supply-side measures have provided little relief. Business Standard reported that the International Energy Agency's readiness for further strategic stock releases, the G7's additional 100 million barrels — largely an acceleration of an existing release programme — and the first Russian diesel cargo bound for the US had failed to reverse the rally. The market was focused on whether these could deliver meaningful additional supply rather than on announcements alone, according to Damani.

Adding to the 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 if Washington and Tel Aviv launched an attack, the report said.

Fed Decision in Focus

The Fed's October 27-28 policy meeting, along with weekly stock estimates from the American Petroleum Institute, the US Energy Information Administration and Cushing crude inventories, will be key for direction, Business Standard reported.

"A hawkish tone could strengthen the dollar and weigh on demand-sensitive commodities, although supply disruptions may limit crude's downside," said Mishra.

For India, a prolonged spell of elevated crude prices could mean mounting pressure on the rupee, inflation, the current account and corporate margins, Mishra added. Business Standard reported that crude oil futures for November delivery on the Multi Commodity Exchange rose Rs 406, or 4.32%, during the holiday-shortened week to close at Rs 9,800 per barrel.

Economic Confidential separately reported that in Nigeria, where petrol prices are closely linked to imported product costs and local refining pricing, sustained increases in international oil and shipping costs could add to domestic fuel-price pressures, depending on crude sourcing, refinery economics, product imports and naira movement.