Oil prices pushed higher again on Tuesday as a cluster of Middle East headlines reminded traders that the region's supply risks are far from settled. WTI crude futures settled at $94.14 a barrel, up $0.40, and kept climbing in later trade to around $94.90 to $95.70, a gain of roughly 1.3% to 1.6% on the day. Prices extended gains into Wednesday's Asian session.
It wasn't a straight line up. Crude actually drifted lower overnight and through the European morning without a clear trigger. Some traders linked that dip to Saudi Arabia's talk of lifting its pipeline export capacity to 10 million barrels a day, which would allow more of its crude to bypass the disrupted Strait of Hormuz. But the mood flipped around the start of U.S. trading, and prices climbed steadily through the afternoon.
Three developments did most of the work. First, reports emerged that President Donald Trump and Israeli Prime Minister Benjamin Netanyahu discussed possible renewed action against Iran. Second, there were fresh attacks on commercial ships near the Strait of Hormuz, the narrow chokepoint that normally handles a huge share of the world's seaborne oil. Third, Saudi-led forces struck a Houthi-linked oil facility in Yemen, adding another layer to the escalating conflict between Riyadh and the Iran-aligned group, which has repeatedly targeted Saudi energy sites in recent weeks.
The Saudi-Houthi front has become a major source of volatility. In recent weeks, Houthi missile and drone attacks have hit Saudi Aramco facilities in the kingdom's south, sparking fires and temporary shutdowns, and the group has threatened a wider campaign. Saudi Arabia, the world's largest oil exporter, has been rerouting crude west to the Red Sea to avoid Hormuz, which makes any disruption on that side especially sensitive.
The implications go beyond the oil market. Higher crude feeds directly into gasoline prices, which hit a record for the month of September at above $4.30 a gallon in the U.S. That's expected to push Wednesday's headline CPI reading sharply higher, and it complicates the Federal Reserve's job. On Tuesday, Treasury yields and the dollar firmed during the morning as crude rallied, before easing later on dovish comments from New York Fed President John Williams. Oil's strength also gave the Canadian dollar a lift, with USD/CAD falling nearly 0.5% and the loonie finishing as the best-performing major currency on the day.
There are some offsetting forces. Reports point to Saudi Arabia working to expand pipeline capacity, and record tanker rates have been weighing on some heavier crude grades. Still, with diplomacy over Hormuz stalled and attacks continuing on multiple fronts, the market's risk premium looks unlikely to disappear soon. Traders will be watching the CPI numbers, any official response from Washington or Tehran, and further Houthi activity for the next push in prices.