Brent Crude Tops $111 on Houthi Strikes and Gulf Ship Attacks

A five-month high that didn't last the day

On Tuesday, October 20, the oil market built a geopolitical risk premium and then gave much of it back within one session. Brent crude climbed to its highest level since May after Yemen's Houthi movement said it had struck several targets inside Saudi Arabia. The group named an Aramco facility in Yanbu, the Shaybah oilfield, Riyadh's King Khalid International Airport and Abha airport.13 Saudi authorities had not confirmed the claims, and Reuters said it could not verify them independently.18

Reports on the size of the peak differ. Early accounts put Brent's intraday high at $111.05 a barrel.57 Later in the European morning, Brent reached $111.75 and traded around $111.20, up about 1.5%.38 The US market saw a bigger swing. The November West Texas Intermediate contract, which expired that day, briefly touched $110, the highest for a front-month contract since April, and gained more than 5% at one point.38 Earlier reports had focused on a WTI high near $104.94.25 The gap between those figures mostly reflects which contract each outlet tracked and when it published. An expiring contract with thin trading can make the move look larger than it is.

By the US close, prices had reversed. Brent finished down about 0.7% at roughly $108.79 after coming close to $112 earlier.30 WTI futures fell about 2.5% to around $101.10, ending an eight-session run in which they had gained more than 20%.21 Several outlets said the turn came after unconfirmed reports that mediators were trying to restart US-Iran talks on ending the wider conflict.2127

What is driving the risk premium

The Houthi claims were not the only factor. Ship-tracking firm Kpler said at least 18 vessels had reportedly been attacked over the previous two weeks. Kpler said that alone was enough to keep a risk premium in prices.38 Iran's Islamic Revolutionary Guard Corps said tankers had struck mines in the Strait of Hormuz. One account said two vessels were hit, and another described a single tanker that caught fire. Neither claim could be verified.910

The Strait of Hormuz has been mostly closed since a joint US-Israeli attack on Iran began in late February.10 Energy Secretary Chris Wright has said crude shipments from the Gulf have recovered to about 80% of pre-war levels, while refined-product deliveries remain limited.910 ANZ analysts warned that the recovery may not hold, citing early data that points to another slowdown as attacks on ships increase.10

ING described the market as pricing in a significant risk premium because of how volatile the situation is. The bank said that premium would fade only slowly even if oil kept flowing, and that there were no signs of that happening yet.58 Other events show how wide the instability has become. A Houthi attack on a government security forces training camp in Yemen's Shabwa province killed 58 people and injured more than 200.18 Saudi Arabia cancelled its flagship Future Investment Initiative after the attacks on Riyadh's airport.27 Its main airport has also limited flights until further notice.10

The impact is spreading beyond oil. Europe's benchmark TTF natural gas futures traded around €88.59 per megawatt-hour, the highest since late 2022.9 Saudi Aramco shares fell about 1%.10 Traders were also expecting a drop in US crude and refined-product inventories, according to a preliminary Reuters poll. That would point to a tight market apart from the Middle East.15

The reporting broadly agrees on the cause of the spike but differs on what comes next. Some analysts see more upside. XM's Peter McGuire said traders were "fundamentally bullish" and that sentiment was tilted toward higher prices.6 The way Tuesday unfolded points to a less one-sided reading. Brent has moved between about $97 and $112 this month.2630 In that range, headlines about diplomacy can wipe out headlines about attacks within hours. A market that sold off on a single unconfirmed report about talks is pricing a fragile situation, not a confirmed supply loss.

Stocks took their lead from oil's reversal

US stocks followed the oil price. The S&P 500 was lower early on, then moved higher after the reports about diplomacy.21 At the close, the Dow was up about 1%, or more than 500 points, at about 52,496. The S&P 500 rose 0.3% to 7,712.57, and the Nasdaq slipped slightly.30 Preliminary figures from another outlet showed slightly higher closing levels.29 Market breadth was strong. Advancing stocks outnumbered decliners by about 2.5 to 1 on the NYSE.23 About three in four S&P 500 members finished higher, and small caps led.27

The sector moves line up with lower oil prices. Healthcare reached a record high, led by Eli Lilly's gain of about 4.7%.23 Energy was the weakest sector.22 Airlines rose as fuel costs fell. American and United both moved sharply higher during the session, though reported gains differ depending on the timing.2630 Rate-sensitive sectors such as real estate and utilities also rose as Treasury yields fell along with crude.2729

Earnings were the other main driver. Equifax jumped about 11% after beating profit forecasts.30 General Motors fell roughly 5% to 7% even after reporting a profit beat, because its full-year guidance came in below expectations.2126 Halliburton's chief executive said rebuilding production and inventories after "one of the largest energy disruptions in history" will drive demand for its oilfield services.26 Meanwhile, technology stocks were still recovering from the previous week's selloff, which was driven partly by concerns about CoreWeave's debt and the cost of financing the AI buildout.2224

How oil feeds into the Fed decision

The oil spike matters for markets mainly because of its link to monetary policy. The Federal Reserve raised its target range by 25 basis points to 3.75%–4.00% on September 16. It was the first hike since 2023, and the vote was 12–0.1315 Headline inflation was running at 3.7% in September.11

Market expectations for the October 28 meeting have moved a lot. In late September, fixed-income markets treated an October hike as the most likely next step.12 After weak September payrolls, the odds of an October move fell from about 75% to under 20%, and expectations shifted to December.13 A Reuters poll taken October 16–20 found 94 of 100 economists expecting the Fed to hold in October. All 100 forecast a December hike, and higher oil prices were cited as a key source of inflation pressure.14 On October 20, prediction markets put the odds of a hold at about 88%.19

Oil prices are the clearest risk to that consensus. One pre-meeting analysis named Brent above $105–$110 as a possible trigger for a surprise second consecutive hike.13 On Tuesday morning, Brent was trading at the top of that range. Goldman Sachs had already said its expectation of a short hiking cycle depends on a sustained drop in oil prices, and it forecast Brent at $85 by December.18 That forecast is now far from current levels. Bond markets were starting to recover. The 10-year Treasury yield fell to about 5.07% on October 19, after hitting levels last seen in 2002.17 A lasting move in crude above $110 would put that recovery at risk.

The takeaway

In our view, the main story is how easily the oil price is moved by headlines, more than the five-month high itself. Physical supply has not been confirmed as disrupted. Saudi Arabia has not verified the Houthi strikes, and Gulf crude flows were recovering until recently.110 Still, there are enough attacks on ships and infrastructure to keep a premium of roughly $10 or more priced into Brent. The direction of crude in the week before the October 28 meeting will likely matter more for Fed expectations than any official's comments. The Fed has entered its pre-meeting blackout period.13 For now, the base case is that the Fed holds in October while sounding hawkish. If Brent breaks decisively above $112, a December hike becomes more likely, and an earlier one becomes possible. Any real progress in US-Iran talks would push expectations the other way.