Oil edges lower after rising on expanding Middle East conflict

Oil prices experienced a decline following a series of gains driven by worries over the escalating conflict in the Middle East potentially disrupting regional supply. Brent crude traded under $106 a barrel, marking a more than 6% increase over the previous three days, while West Texas Intermediate approached $93. Diesel experienced a third consecutive day of decline in New York, as Russia agreed to release additional supply following a request from US President Donald Trump.

Iran-backed Houthi militants launched a barrage of drone and missile attacks on Saudi Arabia's main airport, heightening pressure on Washington to intensify its efforts in the Yemen conflict. Meanwhile, Trump alleged violations of his "energy ceasefire" between Ukraine and Russia. Ukrainian President Volodymyr Zelensky stated that his nation would persist with attacks against Russia, as its energy infrastructure continued to face threats.

Oil prices surged over 70% in 2026 amid heightened tensions stemming from the US war on Iran. Escalating attacks on Saudi Arabia followed Riyadh-led forces in Yemen's campaign to reclaim Houthi-controlled territory, while strikes on tankers in the crucial Strait of Hormuz further aggravated the situation. As a result, numerous supertankers have diverted away from the Persian Gulf in recent days.

Energy specialist Scott Shelton from TP ICAP Group commented on the turbulence, noting the impact of Trump's claims of an "energy ceasefire" and Houthi assaults on Saudi Arabia. He described the week as "off to a messy start." The Houthi attacks on Riyadh's primary airport on the weekend resulted in at least 16 deaths, including a US citizen, and around 300 injuries.

President Trump has indicated he may join Saudi-backed strikes against the Yemen-based group backed by Iran. Saudi Arabia aims to augment its oil export capacity by utilizing existing gas pipelines, with the capability to add 1.2 million barrels a day within seven to eight weeks, according to Energy Minister Prince Abdulaziz bin Salman.

The kingdom also plans to expand a pipeline bypassing Hormuz by 40% to 10 million barrels a day within two to three years. These efforts occurred even after Middle East oil flows rebounded significantly in recent weeks, which put downward pressure on prices. However, the market remains vulnerable to another major supply disruption, according to Haris Khurshid, chief investment officer at Karobaar Capital LP.

He cautioned that while the system has managed to maintain oil flow, it may not be adequately prepared for another significant disruption, highlighting the risk of underestimating the market's exposure. In Europe, Trump's envoys Jared Kushner and Steve Witkoff discussed with Ukrainian officials on October 9 that allowing Russian diesel exports could facilitate Moscow's return to negotiations to conclude the war, as reported by Reuters, citing sources familiar with the matter.