(Bloomberg) -- Oil edged higher, following a four-day drop, as traders weighed Middle East supply risks against a diplomatic push to end the US-Iran war.
Brent rose above $101 a barrel, after tumbling by nearly 8 per cent over the previous four sessions. US president Donald Trump is set to address the United Nations General Assembly in New York later on Tuesday, and may meet with his Iranian counterpart, Masoud Pezeshkian, on the sidelines. In addition, Trump will host a summit with China’s leader Xi Jinping later this week.
“Investors will be watching for any progress on the diplomatic front as President Trump meets with Presidents Pezeshkian and Xi,” said Hamad Hussain, senior climate and commodities economist at Capital Economics. However, it is not guaranteed the talks will result in tangible progress given how far apart the US and Iran remain in their demands, he added.
Supply risks in the Middle East remain acute, with a tanker reportedly struck in the Strait of Hormuz on Monday, according to UK Maritime Trade Operations. Satellite data has shown Saudi Arabia’s observed loadings from inside the Persian Gulf have jumped, suggesting the kingdom has shifted exports back toward the waterway after the shutdown of a key cross-country pipeline.
In Libya, meanwhile, output at the country’s largest oil field has slumped by more than half after a pipeline running to the Zawiya export terminal was shut by an armed group. The Sharara field is currently pumping about 127,000 barrels a day, people with knowledge of the matter said.
Oil has rallied almost 70 per cent this year as war in the Middle East disrupted shipments through Hormuz, while the Russia-Ukraine conflict damaged energy infrastructure. Refined products have advanced even faster than crude, with US retail diesel prices jumping to a record above $6.50 a gallon.
The war in the Middle East — which erupted in February when the US and Israel attacked Iran — is still drawing in more nations. The UK has agreed to support Saudi Arabia’s military in countering the Tehran-backed Houthis, as the kingdom comes under attack from the Yemeni militants, who have also been threatening shipping in the Red Sea and near the Bab el-Mandeb chokepoint.
The European Union’s top diplomat, Kaja Kallas, called for member states to send more naval vessels to protect shipping in the Red Sea, potentially beefing up Operation Aspides. The initiative, underway since 2024, “needs more naval assets and more air assets to address the increased level of threats in the region,” Kallas told reporters in New York.
Separately, the Trump administration has proposed a $5 billion fund to help rebuild infrastructure across the region damaged in the war. The so-called Partnership for Allied Construction & Trust would be led by the US Development Finance Corporation with the goal of encouraging investment, reconstruction and economic expansion, according to a document outlining the idea.
The broad-based spike in energy this year has stoked inflation, with the Federal Reserve hiking interest rates last week to slow the pace of price gains. Fed Bank of St Louis President Alberto Musalem said additional increases may still be needed to achieve the central bank’s goal. - Bloomberg
