Brent oil spiked to $107 a barrel, before paring some gains, as rising tensions in the Middle East heightened concerns over global supplies.
The global benchmark extended a rally that saw futures jump to triple figures for the first time since July in the previous session. Renewed fighting over the past week has ended a period of relative calm, and the prospect of a lengthy conflict is fanning renewed fears of energy-driven inflation as prices for natural gas and diesel also surge.
Iran signaled it has no intention of backing down in the face of an American naval blockade and will escalate its strikes if the US continues attacking its territory. Meanwhile, Tehran-backed Houthis in Yemen are targeting Saudi Arabian assets, with the Kingdom warning its crude production plunged last month to the lowest since 1990.
“Crude is trading at its highest levels since May as the market reprices both the escalation and, increasingly, the duration of geopolitical risk,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “As prices push into levels where options dealers have meaningful short-gamma exposure, that positioning is adding fuel to the move higher this morning.”
Across other technical measures, trend-following commodity trading advisers flipped to 100 percent maximum long on Thursday in Brent, suggesting they’ve exhausted buying capacity for this session, according to Kpler. Robot traders positioned in West Texas Intermediate futures are currently 91 percent long, the firm added.
In the latest Mideast development, Houthi militants defeated Yemeni government forces in Mokha, a key port city on the Red Sea, better positioning the group to menace shipping in the Bab-el-Mandeb Strait, the New York Times reported.
Brent is up more than 70 percent this year, although the benchmark remains well below its wartime peak of $126 a barrel reached in April, in part due to some crude flowing out of the Arabian Gulf.
Still, gains have accelerated across the oil market in recent days. The Dated Brent physical market benchmark was priced at $114 a barrel on Wednesday, as fresh buying from Asia tightens supplies.
Those purchases are coming as drivers are paying more to fill up, with retail diesel prices in the US nearing an unprecedented $6 a gallon and European gasoil futures approaching $200 a barrel. US diesel futures surged above $5 a gallon for the first time since April 2022 on Thursday, while gasoline prices at the pump hit a Labor Day record this week.
For now, US diesel inventories are projected to fall this month to their lowest in more than two decades, according to the Energy Information Administration. Weekly data from the agency showed that distillate stockpiles rose 2.1 million, though supplies still held at lowest seasonal level ever. Gasoline inventories also rose. The fuel increase offers some reassurance over near-term tightness, but the broader outlook remains bleak.
President Donald Trump said the war would only end after US midterm elections in November and that significant gasoline price relief would not come before then, signaling little prospect of a near-term de-escalation in the conflict and relief for consumers.
“Rising oil prices will be a concern ahead of the midterms,” said Warren Patterson, head of commodities strategy at ING Groep NV. “In order to see prices moving significantly higher, we would need to see recent escalation feeding through to renewed disruptions in oil flows through the Strait of Hormuz.”
White House advisers, including Vice President JD Vance, have privately raised with Trump the prospect that the war with Iran could drag on through the remainder of his term, the Wall Street Journal reported, citing US officials.
Such a scenario would strain US military resources and heighten the risk of prolonged disruptions to Middle East energy supplies.
A resurgence in Chinese buying has helped to tighten the global oil market, although the country’s smaller refiners are being squeezed by higher prices and may be forced to cut processing runs in the coming weeks, potentially curbing demand in the world’s biggest crude importer.
-Bloomberg