Oil prices up due to Houthi strikes and US threat to renew Iran war

Oil prices surged on Wednesday as Houthi strikes against Saudi Arabia and the possibility of a renewed US military conflict with Iran heightened supply concerns. Brent, the benchmark for two-thirds of the world's oil, climbed 0.87% to $114.87 per barrel, while West Texas Intermediate rose 1.59% to $101.49 per barrel. Prices had jumped over 2% earlier in the day and were nearly unchanged for the week after falling about 1.6% on Tuesday. Oil continues to hover near multi-month highs due to ongoing tensions in the Middle East.

The Saudi-led coalition announced it had intercepted and destroyed a Houthi missile targeting Taif in the morning. The Houthis also claimed responsibility for a drone strike on Abha International Airport, though Saudi confirmation was lacking. Meanwhile, there is optimism that negotiations between the US and Iran could lead to an end to their conflict. Qatar is mediating a new draft deal to resolve the US-Iranian war, which Tehran is reviewing and expected to respond to by week's end, according to a Reuters source.

Market participants are also wary of the US potentially resuming large-scale attacks on Iran. President Donald Trump reportedly faces a decision on Iran, as talks have yet to produce an agreement. The Wall Street Journal reported that the US has cautioned several Gulf Arab nations to brace for a possible renewed military campaign against Iran following the November 3 midterm elections.

Iranian Foreign Minister Abbas Araghchi cautioned that any Israeli-triggered military escalation in the Gulf could have a devastating impact on global markets.

With Middle Eastern crude supply still volatile and geopolitical uncertainty prevailing, Swiss bank UBS raised its oil price projections, anticipating Brent to remain near $110 until year-end. Giovanni Staunovo, a strategist at the Zurich-based bank, noted in a note that while Middle Eastern flows are improving, they have not fully normalized.

He added that global inventories have dropped significantly, and the undersupplied market could sustain high prices. Record freight costs, limited tanker capacity, and recovering Chinese imports are also factors expected to keep oil prices elevated.

Traders are also monitoring Israel's upcoming election, where Prime Minister Benjamin Netanyahu's faction leads the polls, according to early returns.