Oil retreats from five-month high on Iran mediation talks

Oil prices rose to their highest level in five months on Tuesday, Oct. 20. Brent crude futures went above $111 a barrel for the first time since May, according to ABC News ↗ 0.14%, as traders reacted to reported attacks on ships near the Strait of Hormuz and Houthi strikes on Saudi energy sites. The rally faded later in the day. Brent turned lower after Iran's president met Pakistan's army chief, who is a key go-between for Washington and Tehran.investing.com+1

The swings show how much Middle East risk is built into crude prices. ABC reported that Brent is up more than 55% since the Iran war began in late February.reuters.com

Attacks on ships and Saudi sites

On Monday, Yemen's Iran-aligned Houthis said they had attacked several targets in Saudi Arabia. These included a Saudi Aramco site in Yanbu, the Shaybah oilfield and two airports, King Khalid International in Riyadh and Abha. Saudi authorities did not confirm the claims, and Reuters could not verify them. On Tuesday, the UK Maritime Trade Operations Centre issued an advisory about an incident involving a tanker and military forces off Oman. Iranian state media said the Islamic Revolutionary Guard Corps claimed two tankers had hit naval mines south of Hormuz.reuters.com+1

Shiptracker Kpler said at least 18 vessels were reportedly attacked over two weeks, which keeps the risk premium in place. ING analysts said the market "is pricing in a significant risk premium, given the situation's volatility." They added that the premium would likely shrink only slowly if oil keeps flowing, and that "there are no signs of this yet". ANZ analysts warned that a recovery in Gulf oil flows was now under threat, according to Investing.com.investing.com+1

Mediation reports cool the rally

Prices fell back after Iranian President Masoud Pezeshkian met Field Marshal Asim Munir in Tehran to discuss mediation. Sources told The New Arab that Qatar and Pakistan had presented a "middle-ground proposal." It reportedly offers Iran access to about $6 billion in funds frozen in Qatari banks and allows secret International Atomic Energy Agency visits to Iranian nuclear sites. Neither side has confirmed the proposal. Bloomberg reported that a diplomat involved in the talks disputed claims that a deal was close.newarab.com+2

The S&P 500 ↗ 0.53% rose as oil fell. Deutsche Bank strategist Jim Reid had warned earlier that "markets have heard this story before and will take a lot to believe it".finance.yahoo.com+1

Pressure at the pump

High crude prices are weighing on US voters ahead of the Nov. 3 midterm elections. According to AAA, the average US gasoline price was $4.27 a gallon on Tuesday, almost $1.30 higher than in late February. Fatih Birol, head of the International Energy Agency, said he does not "see any credible pathway that 2027 will be a year of normalisation" for oil markets.abcnews.com+1