Oil at Five-Month High Punishes Households, Rewards Energy Investors

Brent crude, the global benchmark for oil, reached $110.70 a barrel on Monday, its strongest level since May 20. The climb was driven by fresh attacks on Gulf shipping, and households are the ones bearing the cost.

Supply, however, is returning. Gulf oil flows have recovered to about 80% of their prewar level, according to US Energy Secretary Chris Wright.

Why Does Crude Keep Climbing When More Oil Is Flowing?

Six factors are holding crude near its highest mark since May.

• Strait of Hormuz disruption. Iran has pledged to control the waterway, extending its push ahead of the US midterms. Kpler recorded 18 reported vessel attacks over a two-week period.
• Saudi Arabia under attack. Aramco’s headquarters was struck in a confirmed attack on Oct. 14, and the Houthis claim further strikes.
• Refinery damage in Russia. A Ukrainian strike took a crude unit offline at the Ryazan refinery.
• Lean inventories. Onshore oil inventories are at their lowest since at least 2016, according to the International Energy Agency (IEA).
• Diesel squeeze. Diesel fetched more than $200 a barrel in September, nearly twice the price of crude.
• OPEC+ holding steady. The producer bloc left its November output targets untouched.

According to Dutch bank ING, traders are paying a premium for that risk:

“Oil prices remain well-supported … This suggests the market is pricing in a significant risk premium, given the situation’s volatility.”

Who Pays the Price for $110 Oil, and Who Benefits?

Motorists see the impact first. Regular US gasoline is averaging $4.33 a gallon, more than $1 above a year earlier, according to AAA figures.

The cost then moves into broader inflation. The Bureau of Labor Statistics (BLS) reported US consumer inflation of 3.7% in September.

Energy alone was up 20.4% from a year earlier. As a result, traders are betting on another rate hike in December.

Energy investors are on the winning side of that trade. The S&P 500 energy sector had gained 51% this year through Oct. 14, according to Opening Bell Daily.

The broad index rose roughly 13% over the same stretch.

Can Brent Stay Above $100 if the War Premium Fades?

From a technical standpoint, Brent has stayed true to a rising trendline since early July and has made another higher high.

The benchmark has also cleared the 0.786 Fibonacci mark at $108.94. Momentum, as tracked by the Relative Strength Index (RSI), stands at 66, below the overbought threshold.

Should a correction come, first support sits at the 0.618 Fibonacci level near $100.64 together with the trendline.

Goldman Sachs, however, puts the war premium at about $25 of Brent’s price and forecasts $90 by December.

Sparta Commodities’ senior oil market analyst, June Goh, expects Brent to remain rangebound around $100:

“The markets seem unwilling to absorb the higher prices with the rest of the economy not looking rosy.”

With the US midterm elections a month away, fuel prices now pose a political test as well as an economic one.