Fears of an Extended US-Iran Conflict Boost Crude Oil Prices

October WTI crude oil (CLV26) is up +0.43 (+0.48%) today, and October RBOB gasoline (RBV26) is up +0.0126 (+0.40%).

Crude oil and gasoline prices are moving higher today, with crude oil posting a fresh 6-week high.  Crude has support as hostilities escalated between the US and Iran, raising concerns about prolonged disruptions to energy flows through the Strait of Hormuz.  Crude prices also gained after weekly EIA inventories unexpectedly declined.  However, crude gains are limited amid signs of larger crude supplies leaving the Strait of Hormuz, easing supply concerns.

Crude is moving higher today as fighting intensifies between the US and Iran.  The US carried out a second round of strikes in three days overnight, 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.

However, gains in crude oil prices are limited after US Energy Secretary Wright said today that over 17 million bbl of oil went through the Strait of Hormuz on Monday, 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 amid fresh Israeli 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, the Yemen- based Houthis have attacked ships in the Red Sea, and several vessels have been hit by projectiles in the Strait of Hormuz.

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.

Today’s weekly EIA report was mixed for crude oil and products.  On the positive side, EIA crude inventories unexpectedly fell by -4.45 million bbl versus expectations of a +60,000 bbl build.  Also, EIA gasoline supplies fell by -1.17 million bbl to a 9.5-month low, close to expectations of -1.6 million bbl.  On the negative side, EIA distillate stockpiles unexpectedly rose +796,000 bbl versus expectations of a -1.5 million bbl draw.  Also, crude supplies at Cushing, the delivery point of WTI futures, rose +89,000 bbl.

Today'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.