Crude oil futures surged 5% on Thursday as supply disruptions caused by prolonged Middle East tensions, coupled with the US halt in production due to a storm in the Gulf of Mexico, added to the price rise. Brent crude futures jumped 5% above the $104/bbl mark, while West Texas Intermediate climbed above $91, according to Trading Economics. The latest gains came after a volatile session that saw the global benchmark flirt with its lowest close since late September, with the sustained price levels above the $102-a-barrel threshold reflecting ongoing market concerns about potential disruptions from multiple supply chain threats. According to The Financial Express, the December contract for Brent crude futures jumped 4% above the $104/bbl mark, while the US contract was up 3.85% near the $92/bbl level. At latest check, Brent crude futures were trading 0.3% lower at $103.89 a barrel.
The prospect of potential US military action against Iran has intensified with reports that the Pentagon has ordered US Central Command to finalize preparations for renewed large-scale combat operations against Iran. As per Axios, possible targets include nuclear, energy, and infrastructure sites, with President Donald Trump having not made a final decision. US and Israeli sources suggested strikes could come before Israel's Oct. 27 election and the Nov. 3 US midterms, following an article in The Atlantic saying the White House had asked the Pentagon for pre-midterm strike options. Officials reportedly warned such strikes could send oil prices sharply higher, creating additional market uncertainty beyond the existing supply disruption concerns. According to The Financial Express, Ole Hansen, head of commodity strategy at Saxo Bank, noted that crude rose following the flare-up in US-Iran tensions, with the White House reportedly asking the Pentagon to prepare possible military strike plans in the Middle East. However, oil prices retreated from their session highs after US President Donald Trump said Washington would not attack Iran before the November midterm elections, as reported by NBC News citing unnamed sources.
Supply concerns are not limited to the Middle East, with Hurricane Isaias causing oil producers in the Gulf of Mexico to shut down nearly three-quarters of offshore production, which accounts for nearly 15% of crude imported to the US annually. As per the Marine Minerals Administration, producers halted 1.46 million barrels a day of output, or 72% of the regional total, with workers evacuating 129 platforms as of 12 p.m. ET, while two dynamically positioned rigs moved out of the storm's path. BP Plc shut production and evacuated its Thunder Horse and Na Kika platforms as the hurricane approached, with the company also removing nonessential personnel from Argos, Atlantis and Mad Dog platforms. Around 500,000 barrels per day, equivalent to 25% of offshore oil production in the region, has been shut in as the hurricane moves towards the coasts of Alabama, Mississippi and Florida's Panhandle, according to NDTV Profit. Forecasters expect the storm to make landfall late Friday or early Saturday, adding to the production disruption.
Threats to oil shipping in the Gulf and the Strait of Hormuz have increased significantly in October as the US-Israeli conflict with Iran enters its eighth month. According to The Financial Express, attacks on tankers sailing through the waterway route- the Strait of Hormuz– hit their highest mark in a single week since the beginning of the West Asia conflict, as reported by Reuters citing maritime security sources. This added to market fear of further supply disruptions. Nine tankers have come under attack in and around the Strait of Hormuz over the past week, as reported by NDTV Profit. UK Maritime Trade Operations reported a tanker hit by multiple projectiles about 59 miles off Qatar on Wednesday, the ninth attack in the region this month, as reported by Trading Economics. Crude oil shipments through the Strait of Hormuz remain under pressure amid escalating tensions in the Middle East, with around 9.5 million barrels per day exiting the Strait of Hormuz during the week ended Tuesday, approximately 30% below normal levels before the Iran war, according to Kpler data. Crude oil flows from the Middle East, including pipeline workarounds, stood at 16.4 million barrels per day, nearly equivalent to pre-war levels.
Inventory data from the US, the world's biggest oil consumer and producer, provided additional support for rising oil prices. According to The Hindu BusinessLine, the weekly petroleum status report by the US EIA (Energy Information Administration) showed a decline in crude oil inventories for the week ending October 2. US commercial crude oil inventories decreased 3.2 million barrels to 424.1 million barrels, 1% above the five-year average. Gasoline inventories increased 0.4 million barrels, 6% below the five-year average, while distillate inventories remained unchanged, 12% below the five-year average. The higher-than-expected inventory drawdowns in both crude and distillate fuels have contributed to the persistent supply concerns that continue to drive oil prices above the $102-a-barrel threshold. As per Trading Economics, US Energy Information Administration (EIA) data showed crude inventories fell by about 3.2 million barrels last week, that was the largest weekly draw in five weeks.
Technical analysis suggests oil prices could extend their rally beyond current levels, with Brent oil having reclaimed the 0.618 Fibonacci retracement at $100.64 on the daily chart. According to BeInCrypto, Brent also bounced from an ascending trendline drawn from the July low, with buyers defending this trendline three times in early August, late August, and on September 30. The Relative Strength Index (RSI) has risen to about 60 after retesting the neutral 50 zone in late September. If the breakout holds, Brent could target the 0.786 Fibonacci level at $108.94, about 3.5% above current prices, with September's swing high near $110 sitting just above it. A confirmed strike on Iranian energy sites could accelerate the move toward $109, while a diplomatic breakthrough may send Brent back to test its trendline near $98 and the 0.5 Fibonacci level at $94.82. Citigroup analysts noted that "the market continues to price tightness, supply fragility and geopolitical risk," as reported by Bloomberg.
