Oil prices closed flat on Wednesday after briefly hitting one-month highs, as traders weighed fears of supply disruption from overnight U.S.-Iran strikes against signs that crude was still flowing steadily into global markets.
Brent crude futures edged up 9 cents, or 0.1%, to $94.74 a barrel by 08:05 GMT, while U.S. West Texas Intermediate (WTI) crude futures slipped 19 cents, or 0.21%, to $90.03.
The modest moves belied a far more volatile session earlier in the day, when both benchmarks spiked to their highest levels since July 24, with Brent touching $97.04 a barrel and WTI reaching $92.29 before retreating as the market recalibrated around the latest developments in the standoff.
The whipsaw price action reflects what analysts describe as an unusually binary set of outcomes now facing energy markets. “The market is facing a binary risk,” said Ole Hansen, head of commodity strategy at Saxo Bank.
“An announcement that a deal has been reached, or that progress is being made, could send prices tumbling, while any escalation would further undermine the prospect of a peace deal. That’s why oil remains highly volatile, with a potential $5 move in either direction on fresh developments.”
That volatility was on full display Wednesday after Washington and Tehran engaged in their most significant exchange of fire in weeks, effectively returning the two nations to a war footing. U.S. officials have signaled they are prepared to escalate further, with the Pentagon threatening additional and more forceful strikes should hostilities continue.
Iran’s Islamic Revolutionary Guard Corps responded defiantly, warning that the American strikes would prompt Tehran to further restrict traffic through the Strait of Hormuz, the narrow but critical waterway that, before the conflict, carried roughly one-fifth of the world’s consumed oil.
Iran has already moved to effectively close the strait to commercial shipping, a step that has sent shockwaves through global energy markets and forced shippers to reroute or delay cargoes.
Wednesday’s exchange did not occur in isolation. It followed a flare-up in hostilities over the weekend, the first such escalation since July, and came on the heels of attacks on two oil tankers as they departed the Strait of Hormuz on Monday.
Those tanker strikes further disrupted crude supplies and pushed traders scrambling to secure alternative shipments from other producing regions.
The cumulative effect of weeks of rising tension has traders and analysts openly contemplating a return to triple-digit oil.
“Both Brent and WTI have traded above the $90 level this week, and a return toward $100 oil cannot be ruled out if the current escalatory phase continues,” said Tim Waterer, chief market analyst at KCM.
Yet even as fears of a broader supply shock mount, data from Washington suggests the physical flow of oil has proven more resilient than the rhetoric of war might suggest. U.S. Secretary of Energy Chris Wright said Tuesday that 17 million barrels of oil transited the Strait of Hormuz on Monday, marking, he said, the highest daily volume through the chokepoint since the conflict began curbing flows.
Analysts at ING struck a cautious note in reconciling the two competing narratives. “We’ve seen oil flow through the Strait of Hormuz despite the stalemate between the U.S. and Iran, but rising tensions clearly put crossings at risk,” the bank’s analysts wrote in a note to clients.
That tension between resilient current supply and the ever-present threat of a sudden disruption appears to be precisely what is keeping oil prices pinned in a holding pattern rather than breaking decisively higher, even as the underlying geopolitical backdrop continues to darken.
The Middle East was not the only flashpoint weighing on energy markets Wednesday. Russia carried out what Ukraine’s transmission system operator, Ukrenergo, described as a “massive” missile and drone attack on energy infrastructure in the southern Odesa region overnight, adding a second front of geopolitical risk to an already jittery global energy landscape.
With traders now monitoring developments on two fronts the Strait of Hormuz standoff and renewed Russian strikes on Ukrainian energy assets analysts say oil markets are likely to remain on edge in the sessions ahead, with prices poised to react sharply to any fresh headlines out of either region.
WHAT YOU SHOULD KNOW
Oil markets are caught between two competing forces: escalating U.S.-Iran hostilities threatening the Strait of Hormuz (a fifth of global oil supply) versus surprisingly resilient actual crude flows still reaching the market.
This tension is why prices spiked to one-month highs before settling flat and why analysts warn of a potential $5 swing in either direction on any fresh headline.
Watch the Strait of Hormuz it’s the single factor that could send oil toward $100 a barrel or trigger a sharp pullback, depending on whether tensions escalate or a deal emerges.
