Oil drops sharply on profit-taking after U.S.-Iran conflict drove weekly surge

Brent crude whipsawed this week as escalating U.S.-Iran hostilities and Houthi advances in Yemen drove oil to its highest level in nearly four months, before heavy profit-taking on Friday pulled prices sharply lower.

Brent futures climbed from $101.21 on September 9 to $107.20 on Thursday, a move fueled by the U.S. military's destruction of five Iranian crude oil tankers on September 8 and Iran's retaliatory strikes on U.S. naval assets in the Persian Gulf. On Friday, however, West Texas Intermediate crude dropped more than 4% to trade around $96, as traders locked in gains from what had been an 11.7% weekly rally.tmgm+4

Shipping Routes Under Threat

The pullback came despite an unrelenting drumbeat of supply-side risks. Yemen's Iran-aligned Houthis seized the strategic Red Sea port city of Mocha on Thursday, according to the BBC and Al Jazeera, and reportedly advanced to Perim Island in the Bab el-Mandeb Strait, tightening their grip on one of the world's most critical shipping chokepoints. Separately, the Islamic Revolutionary Guard Corps said its navy struck a U.S. unmanned vessel in the Strait of Hormuz.tickernews+3

The disruptions sent supertanker freight rates on the benchmark Middle East-to-China route to a record of nearly $800,000 a day, according to Bloomberg. The Energy Information Administration also reported that U.S. crude inventories fell by just 391,000 barrels in the week ending September 4, well below the expected 1.6 million-barrel draw, easing some supply tightness concerns.tmgm+1

Asian Markets Slide, Rate Hike Fears Mount

Asian equities fell broadly on Friday. Japan's Nikkei 225 slid roughly 2% below the 63,500 level, South Korea's Kospi dropped 1.8%, and Hong Kong's Hang Seng declined about 1%. India's Sensex also fell, with the BSE benchmark losing nearly 600 points at the open.tradingview+2

The selloff was compounded by surging U.S. Treasury yields, with the 10-year climbing to levels not seen since October 2023 and the 30-year reaching 5.34%. Traders now price in a roughly 64% chance the Federal Reserve will raise rates at its meeting next week, up from 41.5% on September 3. Reuters reported that global bond yields spiked to new highs on Friday as soaring oil prices inflamed inflation risks.bitget+1

PVM analyst John Evans captured the market mood: "This conflict will last longer than anticipated. If oil supply and exports are diminished, prices will remain elevated."indianewsnetwork