West Texas Intermediate crude futures for October settled higher on Tuesday, finishing up 4.46 points, or 5.20%, as tensions between the United States and Iran escalated and raised fresh concerns about disruptions to Middle East energy flows. October gasoline futures also rose, gaining 0.0581 points, or 1.89%, following the broad bid across refined products.
Key takeaways
- Price move: October WTI crude closed up 5.20%, with October gasoline up 1.89%.
- Catalyst: A new round of US strikes against targets in Iran and continuing attacks across the wider Middle East heightened risks around shipping routes.
- Implication: Market focus remains on the potential for prolonged disruption through the Strait of Hormuz and knock-on effects for crude and refined supply.
- Supply debate: While OPEC approved an additional production increase for September, analysts are weighing whether those volumes can offset heightened geopolitical risk.
- Next test: Attention turns to Wednesday’s EIA inventory data for direction on near-term fundamentals.
What drove the move
Crude prices accelerated to a six-week high after two oil supertankers were struck by projectiles late Monday while attempting to exit the Strait of Hormuz. The attacks followed a chain of actions that has kept the region at the center of commodity risk pricing: the US targeted Iranian rocket launchers preparing to deploy mines in the Strait of Hormuz on Sunday, and Iran retaliated by firing missiles and drones at US air bases in Jordan and the United Arab Emirates.
The market response intensified further Tuesday afternoon after the US launched another wave of strikes against targets in Iran. The move was linked to Iran’s efforts regarding mines in the Strait of Hormuz and earlier strikes on a US military base in Jordan. Iran warned of “severe punishment” and said it will target US bases and interests in the Middle East in response.
Traders also pointed to a broader escalation in the region that could prolong disruptions beyond the Strait of Hormuz. Fresh Israeli attacks on Iran-backed Hezbollah in Lebanon, strikes on Iran-backed Hamas in Gaza, continued attacks on shipping in the Red Sea by Yemen-based Houthis, and multiple vessel hits in the Strait of Hormuz all contributed to the risk premium embedded in crude.
IEA and Russia-related support for crude
On the fundamentals side, the International Energy Agency said in its monthly report that the global oil supply deficit is expected to worsen, even as demand faces pressure from war-related uncertainty and high prices. The IEA also projected global oil inventories would fall in the third quarter at twice the previously estimated rate, citing ongoing disruptions attributed to the US-Iran conflict.
Crude also drew support from concerns about Russian supply. A Bloomberg report said Russia is preparing to escalate attacks on Ukraine after concluding that negotiations for a peace deal had reached an impasse. Separately reported effects include Ukraine’s increased drone attacks on Russian oil infrastructure, which have constrained production and exports. EA Analytics reported Russian crude-processing rates averaged 3.51 million barrels per day in July—its lowest level in 24 years—amid damage to Russian energy infrastructure from drone and missile strikes. OPEC secondary source estimates cited Russian crude production at 8.89 million bpd in July, the lowest in six years. Reuters also reported that Russian gasoline production fell to about 80,000 tons per day in August, around 70% of domestic demand, pointing to shortages in Russia.
What tempered the rally
Despite the geopolitical premium, some supply indicators pointed to limits on how far prices can run. On the bearish side, Goldman Sachs said Persian Gulf oil exports have risen to 15 million to 16 million barrels per day—about two-thirds of pre-war levels—suggesting some recovery in regional flows.
Additionally, OPEC delegates approved a final crude production increase of 188,000 barrels per day for September on August 2. The group said it has restored the full 1.65 million bpd supply cut implemented in 2023 and plans to hold output steady for the remainder of the year after the September hike. However, traders questioned whether renewed US-Iran military activity in the region could make those incremental volumes difficult to achieve. OPEC’s July production was reported up 1.16 million bpd to 19.44 million bpd.
Inventory and logistics data offered another mixed signal. Vortexa reported on Monday that crude stored on tankers stationary for at least seven days rose 7.1% week over week to 107.58 million barrels in the week ended August 28, which can reflect ongoing distribution constraints even as spot demand remains sensitive to the level of shipping risk.
What to watch next
With the rally driven primarily by escalation risk, the next market catalyst is likely Wednesday’s US EIA inventory update. Market expectations cited by the article were for weekly crude inventories to rise by 60,000 barrels, while gasoline supplies were expected to fall by 1.6 million barrels. Investors will also keep an eye on how quickly Middle East shipping conditions change, and whether further responses between the US and Iran add to or ease the premium on crude supply through the Strait of Hormuz.
