Oil surges to highest since April as market braces for escalation in Iran conflict

Oil prices rose on Friday to their highest levels since late April, Reuters reported. Traders are bracing for a potential escalation of the war in the Middle East after the U.S. midterm elections, while an attack on a tanker in the Strait of Hormuz highlights risks to supplies from the region.

Brent crude futures for December delivery rose more than 2% to an intraday high of $118 per barrel on Friday. The contract expires on Friday. The more actively traded January contract also jumped more than $3 to above $114 per barrel. U.S. West Texas Intermediate crude futures, meanwhile, rose to almost $105 per barrel. Brent is on track for a 13% increase in October, while WTI is headed for a 15% rise, Reuters reported. That would mark a fourth consecutive monthly gain for both benchmarks.

“Traders will remain focused on oil flows out of the Middle East and the likely escalation by US and allied forces,” said Dennis Kissler, senior vice president of trading at BOK Financial. On Wednesday, sources told Fox News that U.S. force movements in the Middle East were intended to ensure the military was ready should U.S. President Trump ask it to take action. There was no indication that Trump had decided to resume strikes or military operations against Iran. Earlier this week, the Wall Street Journal reported, citing sources, that the U.S. had warned several Gulf countries to prepare for a short, intense military campaign after the U.S. midterms. Sources also told the Journal that U.S. forces in the Middle East were restocking munitions, while bombers and fighter jets were preparing for strikes. “An additional aircraft-carrier strike group and Marine expeditionary unit are also poised to join an armada of roughly 20 other warships operating in the Middle East next month, although some ships could rotate out,” the Journal wrote.

Markets are also reacting to an attack on a tanker in the Strait of Hormuz. The UK Maritime Trade Operations agency reported the incident, CNBC writes. According to Reuters’ maritime sources, a small boat attached two limpet mines to the tanker’s hull, causing an engine-room fire that temporarily disabled the vessel. It was the first known successful attack using such explosives in the strait since the war in the Middle East began in February, Reuters reported.

“Continued kinetic action around the Strait of Hormuz amidst doubts of a viable diplomatic pathway are keeping oil prices elevated in expectation of an escalation of the conflict in coming weeks,” said Saul Kavonic, head of energy research at MST Marquee, as quoted by Reuters.