Week in Review – Oil Markets Face Continued Pressure from Iran Conflict, Supply Disruptions and Hurricane Isaias

Oil markets remain volatile as developments in the Middle East, supply disruptions and an approaching hurricane in the Gulf of Mexico create uncertainty for crude and refined products. After gaining more than $3 per barrel on Thursday, prompt WTI futures were trading about $1 lower Friday morning.

Much of the market's attention remains on the ongoing conflict between the United States and Iran. President Donald Trump announced on Thursday that the U.S. would not launch additional attacks against Iran before the November 3 midterm elections, citing productive discussions between the two countries. However, he made clear that the U.S. blockade would remain in full effect.

The announcement offers some hope for diplomatic progress, but significant disagreements remain. Washington and Tehran have exchanged proposals aimed at ending the six-month conflict and reopening the Strait of Hormuz, a critical route for global energy shipments. Trump rejected Iran's latest proposal, while Iranian officials reiterated that the country would not abandon uranium enrichment or surrender its uranium stockpile. The U.S. continues to seek meaningful reductions in Iran's enrichment capacity, leaving considerable uncertainty around the negotiations.

Meanwhile, conditions in the Strait of Hormuz remain dangerous. Late Thursday, several heavy explosions were reported after oil tankers attempting to navigate the waterway's southern route struck sea mines. The incidents highlight the continued risks facing energy transportation through the region, even as diplomatic discussions continue. With shipping routes constrained and the U.S. blockade still in place, disruptions to oil movements remain a major concern for global markets.

Closer to home, Hurricane Isaias is creating another potential supply challenge. The storm is expected to make landfall along the Alabama coast or Florida Panhandle late Friday or early Saturday, threatening approximately 500,000 barrels per day of refining capacity. About 63% of crude oil production in the Gulf of Mexico has already been shut in as operators prepare for the storm. These disruptions could further complicate supply conditions, particularly for refined products, depending on the extent of the storm's impact on regional energy infrastructure.

Supply concerns are also extending beyond the Middle East and the United States. Ukraine launched attacks deep into Russian territory, targeting the country's largest refinery in western Siberia, located in Omsk, along with an oil-processing and petrochemical facility in the Urals. The strikes add another layer of uncertainty to refined product markets already facing disruptions across multiple regions.

There has been some progress in restoring damaged energy infrastructure. Qatar's Pearl gas-to-liquids facility, capable of producing 140,000 barrels of oil equivalent per day, has restarted operations six months after sustaining damage during the U.S.-Iran war. Qatar is now offering cargoes that include naphtha produced at the facility, marking a step toward restoring output.

Beyond immediate supply disruptions, oil inventories continue to play an important role in determining prices. Goldman Sachs Research recently updated its oil pricing model to include visible global landed oil inventories outside OECD commercial storage, reflecting their growing influence on market prices.

The updated model suggests that a 100-million-barrel decline in OECD commercial inventories would raise Brent's estimated fair value by nearly $8 per barrel. By comparison, an equivalent decline in other visible global landed inventories would increase fair value by just over $2 per barrel. This difference likely reflects the greater availability and reliability of OECD inventory data, along with the location of major crude benchmarks such as Brent and WTI.

Although the model points to slightly higher fair values for fourth-quarter 2026 oil timespreads, stronger-than-expected Middle Eastern supply, supported by the region's growing ability to adapt to disruptions, has offset that adjustment.

Economic developments are adding another consideration for energy markets. Federal Reserve Governor Christopher Waller indicated that two additional interest rate hikes may be appropriate if economic conditions develop as expected. While he emphasized that increases would not necessarily need to occur at consecutive meetings, his comments suggest continued concern about bringing inflation back to the Fed's 2% target.

Goldman Sachs Research continues to expect one additional 25-basis-point rate increase in December and has reduced its expectations that the Federal Reserve could leave rates unchanged at that meeting. Higher interest rates can weigh on economic activity and fuel demand, making monetary policy another factor for oil markets to watch.

Diplomatic efforts between the U.S. and Iran could eventually help ease supply concerns, while the continued blockade, dangerous shipping conditions in the Strait of Hormuz, disruptions to Russian refining operations and Hurricane Isaias are keeping risks elevated. At the same time, changes in global inventories and the outlook for interest rates could influence price movements.

Prices in Review

Crude prices fluctuated throughout the week, with a late rebound bringing prices close to Monday's level. The market opened at $91.77 on Monday before declining to $89.27 on Tuesday. Prices recovered slightly to $89.96 on Wednesday, then slipped to a weekly low of $89.00 on Thursday. A stronger recovery followed on Friday, with crude opening at $91.29. Overall, crude prices decreased by $0.48 per barrel, representing an approximate 0.5% decline for the week.

Diesel prices gained momentum after a modest decline early in the week, with the largest increase occurring on Friday. Prices opened at $4.5701 on Monday and dipped to $4.5099 on Tuesday, the lowest level of the week. Prices then shifted higher, reaching $4.6040 on Wednesday and $4.6557 on Thursday, before climbing sharply to $4.8871 on Friday. Overall, diesel prices increased by $0.3170 per gallon, representing an approximate 6.9% gain for the week.

Gasoline prices experienced some shifts throughout the week but remained relatively stable overall. After opening at $3.3125 on Monday, prices dropped to a weekly low of $3.2324 on Tuesday before rebounding to $3.3183 on Wednesday. Prices reversed course again on Thursday, slipping to $3.2420, followed by another recovery to $3.3082 on Friday. Despite these fluctuations, gasoline prices declined by just $0.0043 per gallon, representing an approximate 0.1% decrease for the week.