Crude oil futures rebounded sharply on Thursday as escalating geopolitical tensions in the Middle East reignited supply concerns. Brent crude gained 1.53% to $104.70 per barrel in early trading before pushing past $105, while West Texas Intermediate climbed 1.95% to $93.96. The rally reverses a six-session decline that had pushed Brent below $100 for the first time since early September, when the benchmark traded in the $98 to $99 range on Tuesday.
The rebound was driven by Iranian threats to restrict navigation through the Strait of Hormuz and target energy supplies in the Red Sea. A senior adviser to Iran's supreme leader warned Thursday that Iranian forces and Houthi allies in Yemen could open a new front in the seven-month regional conflict by attacking energy infrastructure if the United States launches further military operations. Iranian President Masoud Pezeshkian told the United Nations General Assembly that Tehran would continue restricting freedom of navigation through Hormuz as long as U.S. sanctions and a blockade remain in place.
Diplomatic hopes faded after officials from both sides met for three hours on the UN sidelines without reaching agreement on reopening the strait. The oil market's price sensitivity reflects the tightness of global supply. Broader price trends show WTI has risen 14.09% over the past month and 44.60% over the past year.
Brent has gained more than 21% in the month to mid-September as the U.S.-Iran conflict disrupted Gulf exports, peaking near $110 on September 14 when Saudi Arabia shut its East-West pipeline following drone attacks. The subsequent retreat was orderly, driven by Saudi restoration of export routes rather than resolution of the conflict. The widening spread between Brent and WTI tells the supply story.
Brent trades above $105 while WTI sits near $94, creating a gap exceeding $11 compared with the $3 to $5 spread that prevailed before the conflict. This premium reflects the additional risk on seaborne crude exposed to Middle East shipping disruptions, while U.S. inland crude trades on domestic balances. Global inventories have contracted significantly this year.
According to the EIA's September Short-Term Energy Outlook, global oil inventories have fallen by an estimated 400 million barrels so far in 2026, with the agency projecting further declines through year-end. The EIA estimates global inventories fell by an average of 3.9 million barrels per day in the second quarter of 2026, with projected drops of 3.0 million barrels per day in the third quarter and 1.7 million barrels per day in the fourth quarter. This depletion means every threat to shipping routes now moves prices $5 to $10 in days.
Saudi Arabia's East-West pipeline remains central to supply stability. The pipeline carries crude from the Eastern Province to the Red Sea port of Yanbu with a capacity of 7 million barrels per day, allowing Saudi exports to bypass the Strait of Hormuz entirely. Following the September 11 drone attack that damaged infrastructure and caused a pumping station fire, Saudi Arabia shut the line as a precaution.
The pipeline is now being restored on a schedule calling for half capacity within days and full capacity in approximately six weeks. The Houthis present an acute threat to the Red Sea escape route. The Iran-backed militant group has reportedly seized the strategic Perim Island in the Bab al-Mandab strait after taking the port city of Mokha on Yemen's western coast.
The group declared a maritime embargo of Saudi Arabia in July and has been escalating operations for months. In mid-September, Houthi forces struck energy facilities and civilian sites in Saudi Arabia, injuring more than 70 people according to Saudi state media. They also attacked sensitive sites in Riyadh with missiles and drones.
Shipping disruptions are already occurring. On Wednesday, the Antigua and Barbuda-flagged bulk carrier Cape Dao was struck in the Strait of Hormuz, killing one crew member and forcing the evacuation of 27 others. Iran's Revolutionary Guard released video it said showed the aftermath.
Daily flows through Hormuz have averaged roughly half of pre-conflict levels, down from a fifth of global oil consumption under normal conditions. At least two tankers came under attack in the strait during mid-September. U.S. inventory data sent mixed signals this week.
According to the EIA's Weekly Petroleum Status Report, crude inventories rose by 3 million barrels to 426.4 million in the week ended September 18, against expectations for a draw of 641,000 barrels. Commercial crude stocks now sit 2% above the five-year average for this time of year. The EIA reported earlier that crude inventories had built by 1.786 million barrels.
Cushing, the WTI delivery hub, added 2.2 million barrels to 23.7 million, which tends to weigh on WTI directly. Refined products showed tighter conditions. Gasoline stocks fell by 1.7 million barrels to 206 million, against expectations for a 100,000-barrel build.
Distillate stocks, which include diesel and heating oil, dropped by 400,000 barrels to 107.4 million and now sit 12% below the five-year average, representing the tightest spot in the U.S. petroleum system. Refinery crude runs fell by 519,000 barrels per day with utilization slipping 2.8 percentage points to 94%, a decline attributed mainly to seasonal maintenance rather than weak demand. Demand destruction forces are gathering strength on the bearish side.
The 10-year Treasury yield pushed to 5.15% on Thursday, its highest since July 2007, as markets priced more Federal Reserve tightening. Fed funds futures now price a 75.3% chance of an October rate increase and a 58.6% chance of another in December. New York Fed President John Williams said Thursday that another rate increase before year-end is a reasonable expectation.
Higher rates slow economic growth and reduce oil consumption. The U.S. Dollar Index climbed to 100.80, its highest since July 30, adding downward pressure on oil demand.
Since oil is priced in dollars, a stronger greenback makes crude more expensive for buyers paying in euros, yen and yuan, dampening demand particularly in emerging markets that import most of their energy. Other supply disruptions compound the Gulf shortfall. On Wednesday, an armed group shut a pipeline valve at Libya's El Sharara field, one of the country's largest oil producers.
The closure lifted WTI $2.28 in just hours and showed that North African supply remains vulnerable to domestic conflict. Libya's output has swung repeatedly over the past decade as rival factions fight over oil revenue. OPEC+ faces geographic constraints on spare capacity.
Much of the group's spare production capacity sits in the Gulf behind the same chokepoints that are disrupted. Saudi Arabia and the United Arab Emirates hold the largest spare capacity, but pumping additional crude provides little benefit if it cannot reach buyers. The spare capacity issue points to one key conclusion: the world has few remaining tools to offset a further Gulf disruption.
The EIA's September forecast frames the price outlook. The agency expects Brent to average $90 in the second half of 2026, an $8 upward revision from its August outlook. As Middle East exports gradually recover, the EIA expects prices to fall to an average of $77 by the second quarter of 2027 and $67 in the second half of 2027 as inventories begin rebuilding.
However, the forecast carries a clear caveat: the EIA expects continued volatility in flows through Hormuz and alternative routes and warns that short-term price movements will likely be more volatile than the baseline implies. With Brent currently trading above $105 against a $90 second-half forecast, the market is pricing more disruption than the agency's baseline assumes. Source: Investing.com NG analysis, EIA Weekly Petroleum Status Report, EIA Short-Term Energy Outlook.
Source: ng.investing.com