Crude Oil Prices Settle Higher on US-Iran Tensions

October WTI crude oil (CLV26) closed up +0.29 (+0.32%) on Thursday, and October RBOB gasoline (RBV26) closed up +0.0311 (+1.00%).

Crude oil and gasoline prices settled higher on Thursday, with crude oil posting a new 6-week high. Crude prices are climbing as the US-Iran conflict continues with no end in sight, prolonging disruptions to energy flows through the Strait of Hormuz.  Crude oil also found support from Thursday’s decline in the dollar index ($DXY) to a 1.5-week low.  Crude prices fell from their best level on signs that oil supplies are still moving through the Strait of Hormuz.

Escalation of hostilities between the US and Iran is supporting crude oil prices.  The US carried out several rounds of strikes against Iran this week, targeting radar systems and mine-laying capabilities along Iran's southern coast.  Iran retaliated with drone and missile attacks on US bases across the Middle East. 

Signs of tighter Middle East oil supplies are bullish for crude prices.  Data compiled by Bloomberg, Kpler and Vortexa showed that Saudi Arabia's Aug crude exports dropped to about 3 million bpd, the lowest amount in 9 years.   

Gains in crude oil prices were limited on Thursday after President Trump said the US controls the Strait of Hormuz and, “We’re taking out 30, 40 boats a night, and a lot of oil is coming out of there.”  Also, CNN reported that the US military escorted 40 vessels carrying 18 million bbl of oil through the Strait of Hormuz on Tuesday, easing supply concerns.

President Trump recently said that the US naval blockade on Iranian ports is putting pressure on the country, and he has no timeline for resolving the US-Iran conflict. 

Crude prices also have support on concerns that Israel could be dragged back into the US-Iran conflict. Israeli Defense Minister Katz said on Thursday that an Iranian attack on Israel would free Israel from any existing restrictions in a response against the regime in Iran.   Israel has ramped up attacks on Iran-backed Hezbollah in Lebanon, dampening the prospects of ending hostilities in the Middle East and a quick reopening of the Strait of Hormuz.  In addition, Israel has struck Iran-backed Hamas in Gaza, while the Yemen- based Houthis have attacked ships in the Red Sea.

In a supporting factor, the International Energy Agency (IEA) said in its monthly report, released on August 12, that the global oil supply deficit will worsen, even as oil demand is taking a hit from the war and high prices.  The IEA said global oil inventories will fall in Q3 at twice the previously estimated rate because of ongoing disruptions from the US-Iran war.

Crude also has support on concerns that Russian crude production could be disrupted further after a Bloomberg News report last Wednesday said that Russia is preparing to escalate attacks on Ukraine after concluding that negotiations for a peace deal have reached a dead end. 

Ukraine has intensified drone attacks on Russian oil infrastructure, curbing Russian crude production and exports.  Ukraine has attacked Russian refineries, oil tankers, and major pipeline infrastructure at least 30 times in July, the second-highest monthly number of attacks since the war began in 2022.  According to EA Analytics, Russian crude-processing rates averaged 3.51 million bpd in July, the lowest in 24 years, amid damage to Russian energy infrastructure caused by drone and missile attacks from Ukraine.  The attacks on Russian oil infrastructure knocked Russia’s crude production in July to 8.89 million bpd, the lowest in six years, according to secondary source estimates published by OPEC.  Meanwhile, Reuters reported last Friday that Russia’s gasoline production fell to about 80,000 tons a day in August, only 70% of domestic demand, leading to shortages throughout the country.

As a bearish factor for crude, OPEC delegates on August 2 approved their final increase of +188,000 bpd in crude production for September.  The group has now restored all of the 1.65 million bpd supply cutback it made back in 2023 and said it plans to hold output steady for the rest of the year after the September hike.  The production increases by OPEC+ might prove difficult to achieve amid renewed US-Iran military attacks in the region.  OPEC's July crude production rose by +1.16 million bpd to 19.44 million bpd. 

Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +7.1% w/w to 107.58 million bbl in the week ended August 28.

Wednesday's EIA report showed that (1) US crude oil inventories as of Aug 28 were +0.7% above the seasonal 5-year average, (2) gasoline inventories were -6.1% below the seasonal 5-year average, and (3) distillate inventories were -14.0% below the 5-year seasonal average.  US crude oil production in the week ending Aug 28 rose +0.1% w/w to 13.862 million bpd, matching the record high first posted in November 2025.

Baker Hughes reported last Friday that the number of active US oil rigs in the week ended August 28 fell by -5 to 447 rigs, modestly below the 1.25-year high of 455 rigs from the week of August 14.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.