Oil Climbs 2% as Houthi Strikes Revive Supply Fears; US-Iran Hormuz Talks Weigh

Oil prices climbed roughly 2% on Thursday after a Houthi missile attack on Saudi Arabia renewed concerns about supply disruptions, though the rally lost steam as reports emerged that Washington and Tehran had discussed reopening the Strait of Hormuz.

Brent futures gained $2.04, or 2.0%, to trade at $105.12 a barrel by mid-afternoon in New York, while US West Texas Intermediate rose $1.99, or 2.2%, to $94.15. Earlier in the session both benchmarks had been up about 5%, with WTI on course for its first daily advance in seven sessions after shedding roughly 13% over the preceding six days.

Negotiators from the United States and Iran, meeting in New York, are examining a phased path out of a conflict now nearly seven months old. Under the outline being discussed, Tehran would reopen the Strait of Hormuz and Washington would lift its economic blockade of Iran. The strait has become the central bargaining chip in the standoff: Iran wants relief from the blockade squeezing its economy, while the US is pressing for free passage of ships along the global oil supply route that Tehran has blocked. Neither side, however, appears willing to be the first to give up its leverage, according to people familiar with the discussions.

Even as diplomacy proceeds, the fighting has not stopped. The Saudi-led coalition in Yemen said it intercepted six ballistic missiles fired by the Iran-backed Houthis on Thursday, foiling attacks on the southern province of Taif and the Yanbu area on the Red Sea.

In a further escalation on the economic front, Iranian flights to Gulf neighbours, including the travel hub of Dubai, appeared to have been cancelled after a US deadline passed requiring global firms to halt work with Iranian airlines. Washington has described the measure as a major step in a campaign President Donald Trump calls "economic D-Day." With the battlefield largely stalemated for months, the US has shifted tactics to widen the reach of its financial sanctions by targeting companies in third countries that do business with Iranian firms, a practice known as secondary sanctions. Iran warned on Wednesday that it would retaliate against neighbouring countries complying with the US flight ban by making their airports "unusable."

Separately, Saudi Arabia is raising crude pumping volumes through its East-West Pipeline to the Red Sea export hub of Yanbu, though tanker loadings there have yet to resume, according to industry sources, satellite imagery and shipping data.

Pressure is also building in refined products. Diesel prices have hit record highs in recent weeks amid supply disruptions in Russia and the Middle East, and high-level contacts between the European Union and the United States are continuing over a reported US plan to ban diesel exports that the EU believes would hurt both sides. Moscow has imposed an export ban following Ukrainian attacks on Russian refineries and other energy infrastructure, while Iranian attacks have disrupted ships and energy infrastructure in the Middle East. A report said Washington was preparing a 90-day diesel export ban ahead of November midterm elections, though US Energy Secretary Chris Wright has disputed that. Analysts have warned such a ban would do little to ease high energy prices and could tighten global supplies further.