Oil gains on report Trump may order Iran strikes before midterms

Oil gained after a report that the White House asked the Pentagon to draw up strike options against Iran that could be executed before the midterm elections, and as a storm forced some US output to shut.

Brent climbed above $102 a barrel, while West Texas Intermediate traded near $90. The report in The Atlantic cited two administration officials, and runs counter to a widespread assumption that President Donald Trump would hold off on escalating the conflict with Tehran before the polls next month.

The size and targets of the potential strikes, and whether the administration will proceed, are still being debated, The Atlantic said. A limited operation could be followed up by more substantial action after the midterms, it added.

Meanwhile, producers in the Gulf of Mexico shut in more than 510 000 barrels a day of crude output — about a quarter of supply in the region — in response to an approaching tropical storm, which then strengthened into a hurricane. Isaias was expected to near the northern Gulf Coast on Friday night.

Crude has rallied sharply this year as the US-Iran conflict curtailed exports and damaged infrastructure, draining inventories and fuelling a pickup in global inflation. While the pace of energy shipments from the Middle East has increased in recent weeks, there’s also been a surge in attacks on vessels.

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Recent incidents included a strike against a tanker off Qatar, with casualties reported, according to UK Maritime Trade Operations. The vessel was hit north of Madinat ash Shamal, at the emirate’s tip, in the first reported attack on a ship deep within the Persian Gulf in about a month.

In the US, speaking at a campaign rally in San Antonio, Texas, President Trump reiterated he wasn’t in a rush to sign a deal with Iran.

US Central Command — which oversees Washington’s military operations in the region — said 20 million barrels of crude oil were flowing through the Strait of Hormuz, according to a social-media post, without giving a timeframe. That equals the daily volume before the conflict, although it’s above estimates given by some industry leaders at a conference this week.

“Flows from the Middle East have recovered, but constrained product supplies, extreme logistics costs and a high risk of Iranian escalation are keeping prices elevated,” said Saul Kavonic, senior energy analyst at MST Marquee.

Elsewhere, Iran-backed Houthis struck two airports in Saudi Arabia, killing three people as the group intensifies its attacks on the kingdom, while also fighting Riyadh-backed forces in Yemen. In retaliation, the Saudi-led coalition said it had destroyed 82 targets in Saada, Hodeida, Jawf and Marib.

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Prices:

Brent for December settlement gained 2% to $102.15 a barrel at 11:42 a.m. in Singapore.
WTI for November delivery rose 1.6% to $89.70 a barrel.

The region-wide risks, strikes against vessels, and demand for crude from more-distant loading points, are driving a historic freight rally, adding huge costs to the supply chain. Hiring a very large crude carrier to move US oil to Asia now costs $77 million, up from an average of $9.2 million last year.

Freight costs are “sky-high,” Citigroup Inc. analysts including Eric Lee said in a note. “The market continues to price tightness, supply fragility and geopolitical risk rather than simply the headline export numbers.”

In the US, official data showed total crude and products exports hit the highest since May last week, returning to a seasonal record and highlighting strong overseas demand. Oil stockpiles dropped 3.2 million barrels.

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