Oil futures advanced sharply on Thursday as escalating attacks on shipping in the Middle East and the threat of storm-related production losses in the US Gulf of Mexico heightened concerns about the availability of crude supplies.
Brent crude futures climbed 3.9% to $104.07 a barrel by 04:17 ET (08:17 GMT), while US West Texas Intermediate futures for November delivery increased 3.7% to $91.53 a barrel.
The gains reflected renewed uncertainty surrounding major international oil transportation routes and the potential impact of Hurricane Isaias on offshore energy production.
Strait of Hormuz Shipping Falls to Two-Month Low
Commercial shipping activity through the Strait of Hormuz declined to its lowest level in more than two months as attacks on tankers increased.
Reuters reported the reduction in vessel movements, citing shipping information compiled by maritime analytics company Kpler.
Iran has reportedly intensified attacks on commercial shipping in the waterway during the past week, while maintaining that the strait remains closed amid its continuing confrontation with the United States.
The renewed disruption followed a temporary improvement in September, when shipping traffic through Hormuz briefly returned to levels observed before the conflict.
On Wednesday, the United Kingdom Maritime Trade Operations agency reported that a tanker had been struck by multiple projectiles north of Qatar, with casualties reported.
The frequency of attacks on tankers reportedly reached its highest weekly level since the beginning of the US-Iran conflict.
The developments have increased concerns about the reliability of oil shipments through one of the world’s most important energy transportation corridors.
Reports also suggested that the Pentagon had directed US Central Command to prepare for a possible resumption of major military operations against Iran.
President Donald Trump had not made a final decision regarding the timing of any further strikes.
A renewed escalation between Washington and Tehran could lead to additional restrictions on shipping through the Strait of Hormuz, potentially disrupting crude exports from the wider Middle East.
Saudi Oil Facilities and Red Sea Shipping Face Continued Threats
Security concerns extended beyond the Strait of Hormuz, with attacks affecting the Red Sea region and Saudi Arabian energy infrastructure.
Hostilities involving Saudi Arabia and Yemen’s Iran-backed Houthi movement continued during the week.
Reports indicated that Houthi forces had targeted a refinery in Riyadh, raising concerns about the vulnerability of regional oil processing facilities.
Continued attacks on shipping routes and energy infrastructure could complicate crude transportation and increase costs for companies operating in the region.
The potential for further disruptions has contributed to the geopolitical risk premium reflected in international oil prices.
Hurricane Isaias Could Disrupt Millions of Barrels of US Production
Weather-related risks added another source of uncertainty for oil markets as Hurricane Isaias approached the northern US Gulf Coast.
The US National Weather Service warned that the storm was expected to strengthen rapidly before making landfall during the weekend, bringing intense rainfall and hurricane-force winds.
Early Thursday reports indicated that the system had already developed into a hurricane.
Several major energy companies reportedly began evacuating non-essential workers from offshore facilities in preparation for the storm.
BP (LSE:BP.), Chevron (NYSE:CVX) and Shell (LSE:SHEL) were among the companies identified as having significant exposure to possible production interruptions.
According to a forecasting model cited by Reuters, cumulative oil production losses across the Gulf of Mexico could reach 11.2 million barrels during the storm.
The possibility of temporary shutdowns at offshore platforms increased concerns about near-term US crude availability.
With Middle Eastern shipping routes already facing heightened security risks, potential production losses in the Gulf of Mexico added to upward pressure on global oil prices.
US Oil Stockpiles Decline as IEA Discusses Reserve Releases
Additional support for crude prices came from US inventory figures showing an unexpected reduction in commercial oil stocks.
Data released on Wednesday indicated that US crude inventories fell by 3.2 million barrels during the week ended 2 October.
Analysts had expected inventories to increase, making the decline an additional indication of tighter short-term market conditions.
However, oil futures gave back some of their earlier gains on Wednesday after the International Energy Agency discussed accelerating previously announced releases from strategic reserves.
The IEA said completing the planned release of 400 million barrels as soon as possible would provide approximately 100 million barrels of additional oil to the market.
It was not immediately clear whether the proposal involved an additional release of reserves or faster implementation of existing commitments.
The potential increase in available supply provided some counterweight to concerns about geopolitical disruptions and storm-related production losses.
Energy Inflation Remains a Concern for Central Banks
The sharp rise in oil prices has renewed attention on the relationship between energy costs, inflation and monetary policy.
Higher crude prices can feed through to transport costs, industrial production expenses and consumer fuel prices, potentially contributing to broader inflationary pressures.
A prolonged period of elevated energy prices could complicate central banks’ efforts to contain inflation and influence expectations for further interest rate increases.
Deutsche Bank analysts suggested that there were “few signs” that inflationary pressure associated with energy prices was “diminishing”.
Oil market participants continue to assess the potential effects of Middle Eastern shipping disruptions, the approaching hurricane and changes in US inventories on global supply conditions.
The simultaneous risks to international transportation routes and US offshore production have increased uncertainty about the near-term direction of crude prices.
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