Oil prices jumped in early trading Tuesday as energy markets adjusted to a new normal in the Middle East. Rising crude prices threaten to drive up the price of gas in the United States just two weeks before the midterm elections.
U.S. crude prices jumped 5% to around $109 a barrel, the highest price since April, while the price of international Brent crude climbed 1.5% to over $111, its highest price since May. Prices retreated later in the morning after weaker-than-expected housing starts in the United States raised the prospect of a broader slowdown and lower demand.
Prices of advanced oil contracts dated next year have also reached record levels, “implying a prolonged period of high oil prices through 2027,” Deutsche Bank analysts said in a note on Tuesday.
“2027 contracts are rising as well as the possible reality of a rise if oil prices sink for longer,” Peter Boockvar, author of the Boock Report and chief investment officer of OnePoint BFG Wealth Partners, said Tuesday.
High gas prices have become a major issue for voters in the midterms, where Republicans are increasingly unlikely to retain control of Congress.
A recent NBC News poll found that 67% of American adults believe gas prices are a “very serious” or “somewhat serious” problem. A majority also said current economic conditions have caused them to change their spending habits.
Gasoline prices in the United States started the week down. At $4.28 per gallon, the national average price of unleaded gasoline was on track to hit its lowest level in a month.
But this trend is likely to be reversed as rising crude prices feed through to the pump.
Several factors contributed to the rise in oil prices on Tuesday.
The cost of chartering a large tanker to transport oil across the Strait of Hormuz has quadrupled since September, data shows.
A large part of this increase corresponds to a risk premium, both for sailors and for insurance companies. Over the past two weeks, at least 18 ships have been attacked in the strait, ship tracking group Kpler said in a memo on Monday.
The higher cost of transportation has begun to offset the recent increase in supply due to the growing number of ships passing through the strait.
Iranian attacks on ships also prompted investors to speculate that the Trump administration would be more likely to step up its attacks on Iran after the midterms, Deutsche Bank analysts said.
Iran-aligned Houthi rebels also claimed Monday to have struck airport, energy and military targets in Saudi Arabia, as well as a training camp in Yemen for that government’s security forces.
The UK will begin deploying fighter jets over Saudi Arabia to help protect against further Houthi attacks, the Ministry of Defense announced on Tuesday.
The entry of another country’s army into regional hostilities was seen as a further sign of escalating tensions.
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