Global oil prices retreated on Thursday after a three-day rally, settling down as U.S. President Donald Trump indicated that renewed military strikes against Iran would not be prolonged. The easing tensions followed heavy market volatility driven by supply fears surrounding the Strait of Hormuz.
Market Reversal After Three-Day Surge
Oil prices pulled back in Asian trading following three consecutive sessions of gains, as energy markets reacted to signals that the latest military confrontation between Washington and Tehran might be short-lived. Contracts expiring in November fell 1.5% to $94.22 per barrel, while West Texas Intermediate (WTI) slipped 1.4% to $89.78 per barrel. Both contracts had risen sharply in the last three trading sessions, reaching five-week highs.
That downward move followed a sharp upward spiral earlier in the week. Brent futures rose $4.16, or 4.6%, to settle at $94.65 a barrel, while U.S. West Texas Intermediate crude rose $4.46, or 5.2%, to settle at $90.22. That was the highest close for Brent since July 24 and for WTI since July 23, driven by intense anxiety over potential blockades and transit halts in the Persian Gulf. Prior to the pullback, Brent traded above $95 a barrel after surging more than 8 per cent over the past three sessions, while West Texas Intermediate was near $91. Crude prices are almost 60 per cent higher this year, with refined products such as diesel rallying even harder due to the Middle East conflict and the Russia-Ukraine war. U.S. diesel futures hit a 52-month high after soaring about 51% over the past 10 weeks.
Military Escalation and Strait of Hormuz Transit Flows
The sharp price swings stemmed from a renewed exchange of hostilities. The rally had been driven by fears that renewed military confrontation between the United States and Iran could further disrupt oil supplies from the Middle East. U.S. forces struck Iran’s southern coast on Wednesday while Tehran retaliated against U.S. positions across the region, in the most intense exchange of fire between the two countries since July. The U.S. launched new air strikes on Iranian targets, quashing hopes that an exchange of fire last weekend might not presage a wider renewal of hostilities. The renewed U.S. strikes followed weeks of relative calm, with Iran retaliating by firing drones and missiles at American bases across the Middle East, in line with a pattern used throughout the six-month war. Tehran warned it could block Gulf exports as Washington threatened tougher sanctions, and U.S. air strikes hit Islamic Revolutionary Guard Corps (IRGC) sites after alleged attacks on shipping and troops.
Despite the volatile security environment, official figures indicated that significant volumes of crude continued to navigate the crucial waterway. The American military escorted 40 vessels through the waterway on Tuesday carrying 18 million barrels of oil, according to CNN, which cited two officials familiar with the matter. U.S. Energy Secretary Chris Wright said 17 million barrels of crude passed through the waterway on Monday, the highest volume since the conflict sharply reduced flows, with flows averaging about 8 million barrels a day. Still, shipping traffic remains volatile. Preliminary Kpler data showed only four commodity vessels transited the strait on Tuesday, compared with a 10-day average of about 13.
Washington Signals a Brief Campaign as Economic Pressure Mounts
Addressing the market’s primary anxiety, President Donald Trump stated that the renewed U.S. campaign against Iran would not persist for an extended period, noting when asked how long the U.S. bombing campaign could continue that I don’t think too long,
although the president added that we’re prepared to do another one.
Trump also said the U.S. had targeted Iranian radar, missile systems, and capabilities linked to laying mines around the Strait of Hormuz.
Concurrently, the administration is pursuing an aggressive financial containment strategy. Nearing the six-month mark of the Iran war and facing diminishing stockpiles of key weapons, the Trump administration is touting a crushing financial campaign against Tehran, promising an “economic D-Day” against a country that has withstood nearly five decades of punishing American sanctions. With sparse details, President Donald Trump announced this week that the U.S. would be imposing an “unprecedented” level of economic warfare and isolation on Iran, aiming to force its leadership to cave to demands to end its nuclear program and fully reopen the crucial Strait of Hormuz to oil and natural gas tankers. It reflects the dire reality Trump faces with an increasingly unpopular war he can’t seem to end just months before pivotal midterm elections that will decide whether his Republican Party keeps control of Congress.
“Today at 12 p.m. ET (1600 GMT), U.S. forces began striking Islamic”
In response to the threat, Iranian Foreign Minister Abbas Araghchi posted Friday on X the history of U.S. sanctions against Iran, saying, We have seen this movie before. Same bull. Different bullies.
The immediate reaction from Iran hawks has been praise and a call for patience as it plays out, while other analysts warn that Trump is refusing to learn the lessons of his predecessors. Treasury Secretary Scott Bessent warned that Washington was about to impose new sanctions. Dennis Kissler, senior vice president for trading at BOK Financial Securities, noted, The latest escalation should keep support under the market, however, keep in mind both the US and Iran are looking for off-ramps here. More peace talks could deflate prices quickly. Chevron chief executive Mike Wirth stated in an interview in Caracas that the global oil market is returning closer to balance as supplies continue to exit the Persian Gulf, although risks remain.
Inventory Drawdowns and Refining Pressures
Underpinning the broader commodity market, the market received a bullish signal from U.S. inventories. U.S. commercial crude stocks fell by 4.5 million barrels last week, the first decline in five weeks, which defied analysts’ estimate for a small rise. Analysts estimate U.S. firms pulled 0.8 million barrels of crude from storage last week. Product inventories offered a mixed picture. Gasoline stocks fell by 1.2 million barrels, while distillate inventories showed additional shifts as the broader energy sector absorbed the shocks of ongoing geopolitical tensions.
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