Oil Swings in Volatile Market as Trump Spurs War Escalation Fear

Oil fluctuated after rallying around 10% since Israel started its attacks on Iran last week, as speculation the US may join the conflict stoked concerns about supply disruptions in the Middle East, Bloomberg reported.

Brent traded above $76 a barrel, while West Texas Intermediate was near $75 after closing at the highest level in almost five months on Tuesday. President Donald Trump demanded Iran’s “UNCONDITIONAL SURRENDER” and warned of a possible strike against the country’s leader — Ayatollah Ali Khamenei — in a social media post, before meeting with his national security team.

Iran’s crude-exporting infrastructure has been spared so far, and most of the fallout has been confined to shipping. The Middle East produces around a third of the world’s oil and a wider conflict could drive prices even higher.

The hostilities have rattled global markets, with investors seeking havens in assets such as gold, and oil volatility surging to a three-year high. Brent’s prompt spread has spiked, signaling concerns around tightening supply, and options are more bullish than after Russia’s invasion of Ukraine in 2022.

The biggest concern for the oil market centers on the Strait of Hormuz, although there are no signs that Tehran is seeking to disrupt shipping through the narrow waterway at the entrance to the Persian Gulf. About a fifth of the world’s crude output passes through the strait, including from Saudi Arabia.

“Trump’s demand for Iran’s “unconditional surrender” and threats against its supreme leader signal diplomacy is off the table,” said Charu Chanana, chief investment strategist at Saxo Markets Ltd. in Singapore. A “worst-case scenario blockade of Hormuz, could send prices sharply higher,” she added.

Israel launched surprise attacks on Iran’s nuclear sites late last week, but American weapons are seen as crucial to achieving a more complete destruction of Tehran’s atomic program than anything it can do alone.

Prime Minister Benjamin Netanyahu has sought to draw the US — which has provided defensive support against Iranian missile fire — deeper into the conflict. He told ABC News on Monday that the countries share a common enemy in Iran, and that it’s in America’s interest to support Israel.

Oil could break above $80 a barrel on headlines of US involvement, said Chris Weston, the head of research at Pepperstone Group Ltd. The shape of the futures curve suggests that people are pricing in a much tighter market, he added.

The gap between Brent’s two nearest December contracts — a key indicator on long-term balances — has significantly widened since the attacks and was almost $3 a barrel in a bullish backwardation structure. Prior to the conflict, it was in a bearish contango pattern, signaling expectations of ample supply.

Meanwhile, US industry figures showed the nation’s crude inventories fell by more than 10 million barrels last week. That would be the biggest decline since last summer if confirmed by official data later on Wednesday.