Oil Rally Extends as Middle East Disruptions Intensify

Oil prices extended their rally this week as military activity intensified across the Middle East and Houthi rebels entered the regional conflict, adding another threat to crude shipments from the region.

WTI and Brent reached their highest levels in 90 days as the Strategic Petroleum Reserve declined again and commercial crude inventories posted a small draw. Natural gas moved lower, however, as traders looked beyond peak summer demand and storage increased more than expected.

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Oil

Fundamental Analysis

Global crude oil prices have now been on a 10-day, $24.50/bbl rally spurred by increasing military actions on both sides of the Iran War. Rebel groups have also entered the conflict on the side of Iran. Strategic Petroleum Reserve inventories declined again, while commercial crude stocks posted a minor draw and both gasoline and distillate inventories increased.

WTI's high was Friday's $104.45/bbl for October, while the low was Tuesday's $91.80, with markets closed Monday. October Brent crude also reached its high Friday at $109.95/bbl, with a low of $95.95. After moving too high, too quickly, the market retreated Friday, but both grades still settled considerably higher for the week. The WTI/Brent spread widened to $5.35. This week's prices were the highest in 90 days.

Yemen-based Houthi rebels have entered the regional conflict by attacking Saudi Arabian oil infrastructure on the Red Sea. They captured the port city of Mokha and the island of Perim, which sits in the middle of the Bab el-Mandab Strait and effectively divides it into two shipping lanes.

Blocking the strait would force Saudi oil shipments moving north through the Red Sea toward the Mediterranean to take a substantially longer route around the African continent to reach Asian markets. Saudi oil production for August was down 1.9 million barrels per day to approximately 6.0 million barrels per day.

The U.S. Navy struck three Iranian oil tankers, halting their attempts to pass through the Strait of Hormuz, while Iran struck two vessels near Oman. Reports that some entities are working with Iran on safe-passage arrangements contributed to lower prices Friday.

Meanwhile, OPEC+ agreed at its latest meeting to maintain current output levels for October.

The IEA now expects regular oil flows through both the Persian Gulf and Red Sea regions will not recover until next year. The agency also expects global oil demand this year to decline by 2.5 million barrels per day to 102.4 million barrels per day, compared with its previous estimate of a 1.6 million-barrel-per-day decline.

The IEA also estimates Russian refinery capacity is approximately 30% lower as a result of attacks by Ukraine. Russia is the world's third-largest exporter of refined products, and the reduction in capacity is contributing to record-high diesel prices.

U.S. Petroleum Snapshot

The Energy Information Administration's Weekly Petroleum Status Report indicated that commercial crude oil inventories decreased 0.4 million barrels to 424.1 million barrels, approximately 1% above the five-year average.

Gasoline inventories increased 1.3 million barrels to 207 million barrels and remain 6% below the five-year average. Distillate inventories increased 2.1 million barrels to 106 million barrels and remain 14% below the five-year average.

Refinery utilization was 97.8%, compared with 98% the previous week, while crude inputs increased by approximately 90,000 barrels per day to 17.6 million barrels per day.

Gasoline demand declined to 8.6 million barrels per day from 8.9 million barrels per day the previous week. Crude imports remained at 6.8 million barrels per day, while crude exports declined to 3.4 million barrels per day. Refined-product exports increased to 8.4 million barrels per day.

The Strategic Petroleum Reserve declined another 1.2 million barrels to 285 million barrels, its lowest level since 1982. Stocks at Cushing, Oklahoma decreased 685,000 barrels to 21.8 million barrels, or approximately 30% of capacity.

U.S. crude production increased to 13.95 million barrels per day from 13.86 million barrels per day the previous week and 13.5 million barrels per day a year ago. The U.S. oil and gas rig count increased by three to 591.

Gasoline prices reached $4.295 per gallon, up $0.15 from the previous week and $1.10 from a year earlier. Labor Day weekend gasoline prices were the highest on record. Diesel reached another all-time high of $6.055 per gallon compared with $3.705 a year ago, while crack spreads reached a record $112/bbl.

Higher energy costs are also contributing to broader inflation concerns. August wholesale prices increased 0.4%, while the CPI held at 3.4%, with energy costs up 2.1%. Consumer sentiment declined to 47.8 from 51.7 in August.

Oil – Technical Analysis

October WTI NYMEX futures remained in overbought territory this week as military activity escalated. Prices are above the 8-, 13- and 20-day moving averages.

Volume is approximately in line with the recent average at 300,000 contracts. The Relative Strength Indicator is very overbought at 74.

Oil – Looking Ahead

The Houthi rebels' entry into the Iran War adds another potential constraint on crude shipments out of the Middle East. Control of Perim Island could allow the rebels to target vessels moving both north and south through the Bab el-Mandab Strait.

Markets will be watching Saudi Arabia's response, while the U.S. has stated that it will not send troops to assist the kingdom. Economic pressure on Iran is also increasing as the U.S. Navy directly targets Iranian oil tankers.

NOAA is now indicating a 90% chance of a very strong El Niño system for North America, with Pacific sea-surface temperatures approximately 3°C above normal. El Niño conditions tend to produce milder winters across the northern U.S. while potentially increasing hurricane activity in the southern U.S. Higher sea-surface temperatures could affect Gulf of Mexico production while reducing heating-oil demand in the Northeast.

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Natural Gas

Fundamental Analysis

October NYMEX Henry Hub natural gas futures moved lower this week as traders began looking toward post-summer weather and a slightly larger-than-forecast storage injection was reported.

The week's high was Monday's $3.01/MMBtu, while the low was Thursday's $2.75.

Natural gas demand this week was estimated at approximately 115 Bcfd, while supply was estimated at 120 Bcfd.

LNG exports reached 18.7 Bcf, while exports to Mexico were 7.3 Bcfd.

International natural gas markets remain substantially stronger. U.K. NBP natural gas was most recently at $27.00/MMBtu, Dutch TTF futures were $28.00/MMBtu and Asia's JKM was quoted at $24.82/MMBtu as Asian and European markets continue competing for LNG shipments.

The EIA's Weekly Natural Gas Storage Report indicated an injection of 40 Bcf compared with a forecast of 28 Bcf and a five-year average of 52 Bcf.

Total natural gas in storage now stands at 3.254 Tcf, 1.5% below last year but 5.2% above the five-year average.

Natural Gas – Technical Analysis

October 2026 NYMEX Henry Hub natural gas futures have fallen below the 8-, 13- and 20-day moving averages. Volume is below the recent average at approximately 90,000 contracts. The RSI is neutral at 45.

Natural Gas – Looking Ahead

European gas storage remains at concerningly low levels, while most LNG shipments leaving the Persian Gulf are bound for Asia. The U.S. is exporting almost 19 Bcfd, much of it destined for the U.K. and European Union.

The developing El Niño could create milder winter conditions across the northern U.S. while increasing hurricane activity in the South. The 8–14-day outlook indicates moderating temperatures in the Northeast, with above-normal temperatures continuing across the Southern Tier and Southwest.

As summer heat begins to moderate, weekly natural gas storage injections are expected to increase.

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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.