Brent tops $108, WTI surpasses $103 as oil prices soar on Middle East escalation

Oil prices soared on Thursday, extending their weekly surge, with U.S. West Texas Intermediate crude futures topping $100 a barrel for the first time since late May a day after Brent crude futures did the same.

The furious rally has been driven by a resurgence in military strikes between the U.S. and Iran, while escalating fighting between Yemen’s Iran-backed Houthi group and Saudi Arabia has further exacerbated concerns about oil supply disruptions.

“The tit-for-tat attacks suggest oil flows from the Persian Gulf are likely to remain disrupted for the foreseeable future. The broadening of the conflict threatens to risk even deeper disruption to oil supplies that had already left the oil market scrambling to adjust,” analysts at ANZ said in a note. 

WTI jumped 8.1% to settle at $103.87 a barrel, closing above the $100 level for the first time since May 19 and posting its best intraday performance since July 13. Meanwhile, Brent advanced 7.3% to settle at $108.60 a barrel, its highest close since May 15 and its best daily gain since July 29. 

U.S. and Iran exchange fiercest strikes yet

Oil prices are now on track for two straight weeks of massive gains, driven by a resurgence in military action between the U.S. and Iran after a weeks-long stalemate over control of the Strait of Hormuz.

U.S. Central Command on Tuesday said it had destroyed five Iranian crude oil carriers in response to the targeting of a U.S. Navy warship by the Islamic Revolutionary Guard Corps. Meanwhile, Iran’s state media said Tehran responded to the strikes by hitting two American vessels, eight oil tankers, 10 U.S.-backed ships, and a U.S. military base in Jordan.

President Donald Trump on Wednesday told reporters that there will be a "lot more" attacks on Iranian tankers. "I think the war will end immediately after the (midterm) election...They’re desperate to try and affect the election so that we could get a nice, weak group of people in there and leave them alone and let them have their nuclear weapon," the U.S. leader added.

However, a report from the Wall Street Journal said Trump’s top advisers had warned that the conflict could rage on through the remainder of the president’s term, which is due to last until January 2029.

Against this backdrop, flows through the Strait of Hormuz have fallen to a fraction of pre-Iran war levels, keeping markets on edge over persistent energy supply disruptions stemming from the conflict.

Fighting between Houthis and Saudi Arabia intensifies 

Compounding supply worries were an uptick in fighting between Iran-backed Houthis and Saudi Arabia. Media reports said the Houthis had seized a key port in Yemen in a push to take control of the country’s Red Sea coast and exert influence over the Bab el-Mandeb Strait, another vital shipping conduit for major Gulf oil producers.

Elsewhere, CNN reported that more than a 100 U.S. military advisers were on the ground in Saudi Arabia to provide intelligence and support to the country against the Houthis, citing multiple sources familiar with the effort.

Separately, Bloomberg News said Saudi Arabia’s crude oil production had dropped to its lowest level since 1990 in August, citing data provided by the kingdom to the Organization of Petroleum Exporting Countries (OPEC). Riyadh informed OPEC’s secretariat that its output fell by 1.9 million barrels a day to 6.238 million barrels a day, Bloomberg said.

OPEC on Thursday also said that world oil demand was forecast to grow by 380,000 barrels a day in 2026, a slight downward revision from its previous outlook. 

U.S. commercial crude inventories slip lesser than anticipated 

Away from the Middle East and closer to home, U.S. commercial crude oil inventories excluding the Strategic Petroleum Reserve (SPR) fell by 400,000 barrels in the week of September 4 to a total of 424.1 million barrels, as per the Energy Information Administration (EIA). The expectations had been for a decline of 1.4 million barrels.

Overall inventories including the SPR fell by 1.7 million barrels in the week of September 4 to a total of 709.4 million barrels, the EIA said. This was the lowest level since November 1983.