Oil climbs as traders weigh possible US strike on Iran after midterms

Oil rose as traders weighed whether the US could resume military strikes on Iran after next week’s midterms and tracked a tight Israeli election. Brent rose 1.3% to settle above $115 a barrel after a two-day drop, while West Texas Intermediate closed near $103.

The US has told several Persian Gulf nations to be prepared for a short, intense campaign, the Wall Street Journal reported, citing unidentified people. US President Donald Trump hasn’t decided to go ahead, but was leaning toward a large post-election attack, the newspaper said. In Israel, Prime Minister Benjamin Netanyahu was edging past opposition leader Gadi Eisenkot in the country’s election. But with more than 90% of the votes counted, neither had a clear path toward forming a government.

“The market is pricing in a larger probability of re-escalation,” said Warren Patterson, head of commodities strategy at ING Groep NV. “Oil prices remain sensitive to developments in the Persian Gulf, specifically around what action, if any, the US may take following the US midterm elections.”

Global benchmark Brent has almost doubled this year as the conflict, which began in February when Trump and Netanyahu ordered the initial attack on Iran, upended energy flows. Futures have moved steadily higher over the past few weeks, even amid signs that plenty of oil continues to come out of the Persian Gulf and underlying physical markets show signs of weakness. Traders have been buying Brent options that profit from higher oil prices, a sign they expect geopolitical tensions to rise again after the elections, said Tim Skirrow, head of derivatives at Energy Aspects Quant Analytics.

Market participants are also wary of stop-and-go diplomatic efforts that have so far failed to present a solution to the war in the Middle East. Oil pared some gains on Wednesday after Iran’s Foreign Minister Abbas Araghchi said that the country “continues to give diplomacy a chance to succeed.” Reuters earlier reported that Qatari mediators were said to have presented Iran with a new draft deal on Sunday.

“The market is treating this with caution,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank AS. “With uncertainty surrounding the Israeli election and the US midterms just days away, the risk of renewed escalation remains elevated.”

Trump has also sent extra forces, including a third carrier group, toward the Persian Gulf. Over the weekend, the US leader told Fox News that it’s “getting to be decision time” on whether there’ll be a deal or a renewed assault.

Prices: WTI for December delivery rose 2.9% to settle at $102.78 a barrel in New York. Brent for December advanced 1.3% to settle at $115.32 a barrel.

In the Middle East, risks remain elevated with Saudi energy infrastructure coming under repeated attacks by Yemen’s Iran-backed Houthi rebels. An incident sparked a fire near the kingdom’s biggest oil-export terminal at Ras Tanura early Tuesday. While it was contained, according to a person familiar with the matter, the extent of the damage wasn’t immediately clear.

Elsewhere, Abu Dhabi National Oil Co. has told some Asian refiners that part of their supply is likely to be delivered through a new pipeline early next year. Signs continue to mount that the reserves governments have used to cushion lost output are running low. US crude inventories dropped 1.9 million barrels, the fourth straight weekly drop, according to the Energy Information Administration. Midwest gasoline stockpiles are at their lowest on record, raising the risk of persistently high gas prices in key battleground states just a week before midterm elections.

“Global inventories have fallen sharply, with pledged strategic oil reserve releases largely completed,” said Giovanni Staunovo, a commodity analyst at UBS Group AG. Record freight costs, constrained tanker capacity and recovering Chinese imports are also likely to keep prices elevated, he added.

Traders also tracked the Federal Reserve’s interest-rate decision in the session, with energy spikes fueling inflation. Fed Chairman Kevin Warsh noted the recent rally in oil futures during a press conference in Washington, and he repeated the central bank’s “readiness to act” on inflation without offering a clear signal on a rate hike in December.