Oil prices have experienced significant volatility, with Brent crude reaching a five-month high and hovering just below US$110 a barrel, its highest level since May. Certain disruptions have pushed energy prices to multi-year highs, allowing trading desks to profit from the volatility.
The price increases are largely driven by a geopolitical risk premium tied to Middle East supply risks. These include frequent attacks on oil tankers in the Strait of Hormuz, which have strained the global fuel supply, as well as Houthi attacks on Saudi infrastructure. Ongoing uncertainty regarding when energy supplies will return to normal amid the war with Iran continues to keep prices inflated.
Despite these pressures, prices have occasionally wavered or fallen as traders weigh risks against mitigating factors. These include a U.S. decision to waive newly imposed sanctions on Russia, prospects for additional Russian energy supplies, and robust crude flows and recovering exports from the Persian Gulf.
Oil extended its rally on Tuesday as investors continued to monitor developments in the Middle East. Traders remain focused on the prospect of an escalation in hostilities by Iran in the Strait of Hormuz versus the stability of crude flows from the region.