Brent Tops $114: What Is Driving Oil
Brent climbs to $114.21: Houthi attacks on Saudi Arabia and expected U.S. strikes after the election lift the risk premium.
Key Takeaways
- Brent has climbed from below $109 to $114.21 a barrel since Wednesday evening.
- Gulf supply is largely flowing, yet traders fear the next outage.
- If the price holds, pressure grows on the Fed and the ECB to keep raising rates.
A barrel of Brent costs $114.21 on Friday morning. That is $18 more than three weeks ago and roughly 80 percent more than at the start of the year, as Finanzmarktwelt notes, citing Bloomberg. The contradiction behind it stands out: little oil is actually missing, yet the price keeps climbing.
The Market Is Paying for Fear, Not for Missing Barrels
How tight is supply, really? U.S. Energy Secretary Chris Wright puts Gulf deliveries at about 80 percent of pre-war levels, according to Fox News. Only refined products remain scarce. Iraq has exported more than 3.4 million barrels a day so far in October, close to its pre-war pace.
The premium in the price therefore has a different cause. Hamad Hussain, commodity economist at Capital Economics, sees the risks clearly to the upside, because every further attack on tankers raises the odds that supply drops out again. That is exactly what traders are betting on.
What Rattled Nerves Lately
Several reports converged within a few days:
- The Houthis claim attacks on the Saudi port of Yanbu, an oil field, and an airport. Yanbu is seen as the key escape route if the Strait of Hormuz were blocked.
- After an alert on Thursday, Aramco sent employees at its Dhahran headquarters home.
- In Libya, pipelines feeding export terminals were throttled.
- According to the New York Times, plans for fresh strikes on Iran are ready in Washington and Israel, to come after the U.S. midterm elections in early November.
The last point explains the direction. Finanzmarktwelt's Kummerfeld sees Donald Trump as unwilling to escalate before the vote, but the oil price reflects the expectation that escalation comes afterward. Dennis Kissler of BOK Financial Securities hears from the market that most traders are planning for durably higher prices.
The Diesel Deal Barely Helps
Washington is trying to push back. Under an agreement with Moscow dated October 9, 300,000 metric tons of Russian diesel are to reach the market in October and 500,000 in November; a first tanker with 40,000 tons was due to leave the Baltic. The U.S. suspended sanctions to make that possible. Finanzmarktwelt reports growing criticism from within Trump's own party, including House Speaker Mike Johnson. Measured against the crude market, the volumes are small, and so far they do nothing to the risk premium.
What momentum says
Momentum for Brent shows a mixed picture: on the weekly (1W) and daily (1D) timeframes it signals a bullish trend, on the 4-hour chart (4h) neutral, and on the 1-hour chart (1h) bearish. The broader uptrend stands, but short-term it lacks drive.
Where the Money Goes
Expensive oil works like a tax: transport, industry, and households pay more, and inflation picks up. Finanzmarktwelt points out that the Fed and the ECB therefore face more pressure to raise rates further. For equities, which are already struggling with AI worries, that is additional headwind. Gold also suffers from rate expectations. The longer Brent stays above $110, the more a commodity story turns into a question about the economy.