Oil Prices Surge as Middle East Attacks Disrupt Supply

Crude oil prices rallied sharply this week as renewed attacks on commercial vessels in the Persian Gulf, reduced shipping traffic through the Strait of Hormuz, and a substantial hurricane-related decline in U.S. crude inventories intensified concerns about global energy supplies.

WTI crude moved above $100 per barrel, while Brent reached $110. Natural gas prices rose early in the week on colder Northeast temperatures and a smaller-than-expected storage injection before retreating as forecasts shifted toward warmer weather.

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Oil

Fundamental Analysis

Confirmed attacks on vessels, reduced shipping traffic and a large hurricane-related inventory draw rallied crude oil prices this week. WTI reached a high of $101.80 per barrel on Friday after touching a low of $89.60 on Monday. Brent crude reached a Friday high of $110.00 per barrel, compared with Monday's low of $102.30.

Both grades settled higher for the week, while the WTI/Brent spread narrowed to approximately $8.10.

President Trump reportedly reached an agreement to purchase Russian diesel, representing a significant policy reversal for both countries. The U.S. had imposed sanctions on Russian energy exports, while Russia has periodically restricted diesel exports following damage to its refining infrastructure from Ukrainian attacks.

According to analysts cited in the commentary, the diesel volumes involved would represent approximately 12 days of U.S. supply. These are not newly produced barrels but supplies that would otherwise be available to other buyers.

Iran reportedly struck two cargo vessels and a crude oil tanker this week, escalating tensions in the Persian Gulf despite President Trump's earlier pledge to avoid further military action against Iran until after the midterm elections.

The renewed attacks have increased tanker rates, shipping distances and maritime insurance costs. Ship-to-ship transfers used to move cargoes through the Strait of Hormuz have also increased transportation expenses, as multiple tankers may be required to move a single shipment.

Crude shipments through the Strait averaged approximately 13.9 million barrels per day last month, about 75% of prewar volumes. However, renewed hostilities reduced daily throughput to approximately 2.9 million barrels per day, according to tanker-tracking estimates.

Refined-product shipments remain approximately 50% below prewar levels.

Yemen-based Houthi rebels continued launching missiles toward Saudi Arabia, including attacks reportedly directed at the Riyadh airport. Saudi Arabia has responded with operations against Houthi positions in Yemen and is examining additional routes to move oil out of the Persian Gulf, including the possible use of natural gas pipeline infrastructure.

Meanwhile, the International Energy Agency indicated that strategic reserve releases from member countries could exceed the 400 million barrels pledged in March. Releases are being accelerated and include refined products such as diesel.

Crude and diesel prices nevertheless moved higher as Ukraine continued targeting Russian refineries. JPMorgan estimated that the global diesel deficit reached approximately 1.0 million barrels per day last month, while other analysts expect shortages to continue for several months.

The IEA also reported that global onshore oil inventories are at their lowest level since 2016. Global oil supply rebounded to approximately 102.3 million barrels per day in September, although the latest escalation of attacks in the Middle East threatens to reduce that figure.

At the same time, the IEA estimates that higher fuel prices could reduce average global oil demand by approximately 2.6 million barrels per day compared with last year.

U.S. Petroleum Snapshot

The Energy Information Administration's Weekly Petroleum Status Report indicated that commercial crude oil inventories decreased by 8.6 million barrels to 416 million barrels, approximately 3% below the five-year average.

Production and transportation disruptions associated with Hurricane Isaias were the primary contributors to the substantial inventory decline.

The American Petroleum Institute had forecast an 11.0 million-barrel draw, while analysts expected a slight increase of approximately 100,000 barrels.

Gasoline inventories increased by 3.5 million barrels to 208 million barrels and remain 4% below the five-year average. Distillate inventories declined by 2.5 million barrels to 102.6 million barrels, approximately 12% below the five-year average.

Refinery utilization increased to 93.5% from 92.7% the previous week, while refinery crude inputs increased by approximately 135,000 barrels per day to 16.6 million barrels per day.

Gasoline demand declined to 8.4 million barrels per day from 8.8 million barrels per day the previous week.

Crude imports decreased to 6.0 million barrels per day from 6.8 million barrels per day, while crude exports declined slightly to 4.6 million barrels per day. Refined-product exports fell to 7.4 million barrels per day from 8.1 million barrels per day.

The Strategic Petroleum Reserve remained at approximately 283 million barrels, its lowest level since 1982. Inventories at Cushing, Oklahoma increased by 1.9 million barrels to 26.6 million barrels, approximately 35% of storage capacity.

U.S. crude production declined by approximately 300,000 barrels per day to 13.7 million barrels per day, compared with 14.0 million barrels per day the previous week and 13.6 million barrels per day a year earlier.

The U.S. oil and gas rig count remained unchanged at 603, compared with 548 a year ago. Oil-directed rigs declined by three, natural gas rigs increased by one, and miscellaneous rigs increased by two.

Average gasoline prices declined to $4.33 per gallon, down $0.04 from the previous week but $1.21 above year-earlier levels. Diesel prices increased to $6.33 per gallon, up $0.04 for the week and $2.68 compared with last year.

President Trump also signed a waiver permitting broader use of red-dyed diesel, which is generally restricted to qualifying off-road applications.

On the economic front, September's Consumer Price Index increased 3.7% from a year earlier, with core inflation at 2.6% and energy prices up 5.2%. Real average weekly wages declined 0.5%.

Wholesale inventories increased 0.4%, while industrial production rose 0.7%, exceeding expectations for a 0.4% increase.

The Dow Jones Industrial Average finished higher for the week, while the S&P 500 and Nasdaq declined amid inflation concerns and a shift away from technology stocks toward more defensive investments. Both the U.S. dollar and gold moved lower.

Oil – Technical Analysis

November WTI NYMEX futures moved above the upper Bollinger Band and well above their 8-, 13- and 20-day moving averages as the rally pushed prices beyond $101 per barrel.

Volume was below the recent average at approximately 80,000 contracts as traders began shifting their attention toward the December contract.

The Relative Strength Indicator increased to approximately 69, reflecting the strength of the recent rally and proximity to traditionally overbought momentum levels.

Oil – Looking Ahead

Continued attacks by Iran and Yemen-based Houthi forces are adding uncertainty to already constrained global crude oil and refined-product markets.

Global diesel supplies remain particularly tight as refinery disruptions and shipping constraints limit available volumes.

In the United States, fall weather has already brought periods of colder temperatures to the Northeast, a major heating-oil-consuming region. However, the near-term forecast indicates that above-normal temperatures may return later in October, potentially moderating heating demand.

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Natural Gas

Fundamental Analysis

November NYMEX natural gas futures moved higher early in the week as a brief cold snap in the Northeast and a smaller-than-expected storage injection supported prices.

However, prices declined later in the week as weather forecasts shifted toward warmer conditions.

Natural gas reached a weekly high of $3.30/MMBtu on Tuesday and Wednesday before declining to Friday's low of $3.06.

Natural gas demand was estimated at approximately 104 Bcfd, while supply was estimated at 110 Bcfd.

LNG exports were reported at 18.0 Bcf, while natural gas exports to Mexico were approximately 7.0 Bcfd.

International natural gas prices continued rising. U.K. NBP natural gas was quoted at $28.20/MMBtu, Dutch TTF futures reached $28.40/MMBtu and Asia's JKM was quoted at $26.53/MMBtu.

European and Asian buyers continue competing for LNG shipments. Spain has reportedly eliminated its dependence on Russian natural gas imports, with U.S. LNG now accounting for approximately 48% of the country's natural gas requirements.

The EIA's Weekly Natural Gas Storage Report indicated an injection of 67 Bcf, compared with a forecast of 75 Bcf and a five-year average injection of 90 Bcf.

Total working natural gas in storage increased to 3.567 Tcf, approximately 3.9% below the previous year but 1.3% above the five-year average.

Natural Gas – Technical Analysis

November NYMEX Henry Hub natural gas futures initially rallied on lingering production disruptions associated with Hurricane Isaias and colder temperatures in the Northeast.

Prices subsequently retreated as warmer weather forecasts reduced expectations for near-term heating demand.

Futures are now trading around their 8-, 13- and 20-day moving averages. Volume is approximately in line with the recent average, while the Relative Strength Indicator remains neutral at 50.

Natural Gas – Looking Ahead

Natural gas production remains relatively steady, while typical fall heating demand has not yet developed across much of the country.

LNG exports are expected to remain strong, supported by continued international demand for U.S. natural gas.

The surplus of natural gas in storage relative to the five-year average continues to shrink as weekly injections remain below historical levels.

With approximately 3.57 Tcf in storage and only three weeks remaining in the official injection season, weekly injections of approximately 143 Bcf would be required to reach 4.0 Tcf by November 1.

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Weekly Oil & Gas Commentary is provided for informational and educational purposes and should not be considered investment, trading or financial advice.