Oil climbs more than 2% to multi-week high as Mideast conflict threatens oil transit routes

HOUSTON: Oil prices were approaching a six-week high on Wednesday on mounting supply concerns as hostilities continued escalating between the U.S. and Iran, while threats to shipping by the Houthi militia in Yemen further boosted prices.

Brent crude futures were up $2.31, or 2.54%, at $93.32 a barrel by 11:42 a.m. EDT (1642 GMT), their highest in almost six weeks, after hitting a session high of $95.47. U.S. West Texas Intermediate crude climbed $1.91, or 2.26%, to $86.25.

Both benchmarks touched their highest levels since June 11 during the session.

The Brent crude three-month timespread, meanwhile, expanded to $8.80 a barrel, its widest since May 22, deepening backwardation on mounting supply risks. Backwardation is where prompt crude trades above later-dated barrels, typically signalling tighter near-term supply.

Brent crude futures have swung between a closing high of $118 and low of $72 a barrel since the start of the war in late February.

The U.S. military said it carried out an 11th consecutive night of attacks on Iran. The U.S. attacks came a short while after the Kuwaiti army said its air defences were intercepting Iranian drones.

President Donald Trump said on Wednesday the U.S. would “bomb and destroy one bridge or power plant” any time Tehran targets a ship in the Strait of Hormuz.

As well as the renewed conflict over control of that key waterway, the Iran-aligned Houthis have opened a new front in the war by threatening to target vessels carrying Saudi oil in the Bab el-Mandeb strait and announced a naval blockade of Saudi Arabia.

Ships with links to Israel, the United States or Saudi Arabia are at a higher risk of being attacked by Yemen’s Iran-aligned Houthi militia and are advised to avoid voyages through the Red Sea and Gulf of Aden, the European Union’s naval force Aspides said on Wednesday.

“The energy market now has the dual-strait worry, with the Bab el-Mandeb Strait looking like it could join the Strait of Hormuz as a hot spot, as traders closely watch shipping numbers in the Red Sea,” said Tim Waterer, chief market analyst at KCM Trade.

Bab el-Mandeb at the southern entrance to the Red Sea has become an increasingly important route for Saudi Arabian crude exports as traffic through the Strait of Hormuz has fallen sharply again since a ceasefire between the United States and Iran collapsed earlier this month.

Three oil tankers loaded with Saudi crude for China and India made U-turns in the Red Sea on Tuesday, heading towards the Suez Canal rather than braving the Yemeni coast.

Four other tankers also changed course in the Red Sea on Wednesday.

“The (Houthi) threat has led tankers to divert which could further pressure the physical market and Saudi exports, contributing to push prices to the upside,” said Frank Walbaum, market analyst at trading platform Naga.com.

In response to the Houthi warnings, Asian refiners are seeking to ship crude oil from Saudi Arabia’s Red Sea port of Yanbu through the Suez Canal and around Africa.

Meanwhile, U.S. crude stocks rose last week, the Energy Information Administration said, as refinery runs eased and

 crude exports dropped while imports rose.

Crude inventories rose by 2 million barrels to 411.7 million barrels in the week ended July 17, the EIA said, compared with analysts’ expectations in a Reuters poll for a 1.1 million-barrel draw.