Oil prices hit 5-month high before retreating on US-Iran diplomacy hopes

Oil prices surged to a five-month high during trading Tuesday (local time) on fears of supply disruptions in the Middle East, before retreating to close lower as prospects for diplomatic mediation between the United States and Iran came into focus.

West Texas Intermediate crude for November delivery settled at $101.79 per barrel on the New York Mercantile Exchange, down $1.87, or 1.80 percent, from the previous session. Brent crude for December delivery closed at $108.79 per barrel on the London ICE Futures Exchange, down $0.76, or 0.69 percent. Brent had approached $112 per barrel during trading — its highest level in five months — before giving back its gains and turning lower.

Diplomatic mediation efforts between Washington and Tehran emerged as a downward pressure on prices even as military tensions in the Middle East continued.

Iranian President Masoud Pezeshkian met Pakistan's army chief, Gen. Asim Munir, in Tehran on Tuesday to discuss mediation efforts and regional developments, according to Iran's Nour News.

Pakistan has played a key role as a mediator between the US and Iran. Pakistani mediation helped broker a temporary peace deal in June, but the agreement unraveled weeks later when armed conflict between the two countries resumed.

However, concerns over supply disruptions in the Middle East continued to provide underlying support for prices.

Yemen's Houthi rebels, backed by Iran, said they launched multiple strikes Tuesday targeting Saudi Arabia's energy facilities, airports and military installations. The targets included the Yanbu facility of Saudi state oil company Aramco, the Shaybah oil field, King Khalid International Airport in Riyadh and Abha Airport.

Analysts at ING said in a note that "oil prices remain elevated as significant risk premium is being priced in due to the high volatility of the situation in the Middle East."