Oil pulls back after surging on U.S.-Iran escalation

Oil prices whipsawed this week as renewed hostilities between the United States and Iran drove one of the sharpest single-day rallies of the five-month conflict on Wednesday, only for prices to retreat on Thursday after shipping data showed tankers were still moving through key Middle Eastern chokepoints.

Wednesday's Spike

Brent crude futures surged nearly 8% on Wednesday while West Texas Intermediate settled 6.6% higher after Iran launched ballistic missiles toward U.S. forces in Jordan. The missiles were intercepted, and U.S. and Saudi forces carried out retaliatory strikes against Iran-backed militias in Iraq — the first time Saudi Arabia had publicly joined American air operations in the conflict. The U.S. Central Command said it also carried out two hours of strikes on Iran, ending a lull that began over the July 25–26 weekend.investing+2

President Trump told Fox News ↘ 0.63% on Wednesday that Iran would be "hit very hard" following Tehran's attacks, further stoking supply-disruption fears. The rally reversed a 5% plunge on Tuesday that had come during a brief pause in hostilities.business-standard+2

Adding fuel to the move, the U.S. Energy Information Administration reported crude inventories fell by 7.2 million barrels last week to the lowest level since 2018, far exceeding analyst expectations of a draw of roughly 1.3 million barrels.investinglive+1

Thursday's Pullback

By early Thursday, Brent had slipped about 1% to around $89.45–$89.92 a barrel, while WTI eased to roughly $83.82–$83.94. Traders took profits after preliminary shipping data showed 39 commodity vessels passed through the Bab el-Mandeb strait into the Red Sea on Tuesday, the highest number since July 19.businesstimes+2

"While overall volumes are reduced, oil continues to leak out of the region through multiple channels, and additional workarounds are being explored," IG market analyst Tony Sycamore wrote in a note. Rystad Energy estimates about 13 million barrels per day of Gulf oil is still reaching markets despite the near-shutdown of the Strait of Hormuz since the conflict began in February.business-standard+1

Broader Supply Risks Persist

The conflict continues to widen. Iran-aligned Houthis in Yemen imposed a naval blockade on Saudi Arabia in the Red Sea on July 20 and have discussed imposing transit fees on vessels seeking safe passage through the Bab el-Mandeb strait. Egyptian authorities reported drone strikes on two natural gas vessels off the country's coast. Saudi Arabia is now seeking to build a coalition to protect Red Sea shipping from Houthi attacks.investing+1

Iran has also rejected an Omani proposal for regional joint management of the Strait of Hormuz, which previously carried about a fifth of global oil and gas flows. Ye Lin, vice president of commodity markets at Rystad Energy, said the market is following a familiar pattern: "Geopolitical headlines are triggering rapid price spikes, but those gains are often short-lived as actual supply flows and parallel diplomatic efforts tend to determine how long those upward price moves persist".business-standard+1