Oil holds above $116 as Middle East tensions sustain market volatility

Oil prices maintained their position above $116 per barrel on Tuesday, amid ongoing Middle East tensions and persistent market volatility, according to a Reuters report. Brent crude futures increased by 0.4% to $116.24 per barrel, while US West Texas Intermediate rose by 0.3% to $102.07 per barrel, marking a reversal from earlier declines of around 1%. The prices have been hovering near six-month highs since Brent exceeded $117 last week, following Iranian attacks on tankers near the Strait of Hormuz.

Diplomatic negotiations involving Saudi Arabia, Turkey, Pakistan, and Iran took place on Monday, providing a glimmer of hope for reducing regional tensions. However, the prospect of further supply disruptions was highlighted by the Houthi attacks on Saudi oil infrastructure, adding to the uncertainty surrounding global energy markets. The month of October has witnessed the highest number of attacks on commercial shipping around the Strait of Hormuz since 2017, making the waterway a critical source of uncertainty.

Supply constraints have continued to support elevated oil prices, with ANZ Research noting that Gulf crude exports have declined for four consecutive weeks. Additionally, flows through the Strait of Hormuz are currently at approximately 60% of their normal levels. Moreover, global distillate inventories are nearly 5% below their five-year average, further fueling concerns over supply availability and contributing to the market volatility.