Oil Rises 4% as Middle East Tensions and Hurricane Isaias Threaten Supply

Oil prices climbed on Thursday as the Middle East conflict and hurricane-related shutdowns in the US Gulf of Mexico heightened supply risks. Gold edged higher as investors weighed the Federal Reserve’s uncertain rate outlook and mounting US debt concerns.

Market Wrap-Up: Middle East Tensions and Hurricane Isaias in Focus 

Brent crude futures settled 4.1% higher at US$104.28 a barrel, while US West Texas Intermediate (WTI) crude settled 3.6% higher at US$91.49. Both benchmarks had gained more than $5 a barrel at one point during the session, with Brent reaching its highest level since 29 September.

Oil prices gained amid concerns over potential US strikes on Iran and Hurricane Isaias, forecast to make landfall along the northern US Gulf Coast late Friday or early Saturday. However, prices retreated from their session highs after US President Donald Trump said Washington was having productive discussions with Iran and pledged not to attack the country before the 3 November US midterm elections.

Supply concerns remained elevated despite signs of increased exports from Gulf producers. Tanker attacks in the Strait of Hormuz last week were the highest of any week since the conflict began, according to Reuters. Before the war, the strategic waterway carried approximately 20% of global oil and fuel shipments. 

The US also imposed fresh sanctions on Iran, targeting individuals, networks, and 17 vessels involved in transporting Iranian crude, oil products, and petrochemicals, according to the US Treasury Department. Meanwhile, Iran was reviewing Washington’s response to a proposal under which the Strait of Hormuz would reopen within seven days, according to Iran’s Tasnim news agency.

In the US Gulf of Mexico, Hurricane Isaias prompted further production shutdowns. Approximately 1.3 million barrels per day, or 62.9% of current regional oil production, had been shut in by Thursday, according to the US Marine Minerals Administration (MMA), the federal offshore energy regulator.

Shell and Chevron curtailed offshore operations, while BP shut production at its Na Kika and Thunder Horse platforms and removed all personnel.

Gold also edged higher, with spot prices rising 0.4% to $4,126.78 an ounce by 2:16 p.m. EDT on Thursday, after touching their lowest level since 5 August in the previous session. Gold remained under pressure from elevated US Treasury yields and a firmer dollar earlier in the week, while concerns over US indebtedness supported interest in the metal.

The Federal Reserve’s policy outlook remained uncertain. September meeting minutes revealed divisions among policymakers over the rationale for raising interest rates, while Fed Governor Christopher Waller said further increases would likely be needed but left room for a pause in October.

According to the CME FedWatch Tool, traders were pricing in a 17% probability of an October rate hike and an 81% probability of an increase in December.

The US Dollar Index (DXY) retreated from its recent highs on Thursday, testing the 102.00 level as the dollar gave back part of the previous session’s gains. Investor attention will turn to preliminary US consumer sentiment data and a speech by Federal Reserve Bank of Boston's President & CEO Susan M. Collins on Friday.

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DXY:

Key Takeaways:

- The dollar retreated from its recent highs, giving back part of the previous session's gains amid ongoing geopolitical and monetary policy uncertainty.

- Preliminary US consumer sentiment data and Boston Fed President Collins’ remarks are the next near-term catalysts.

Technical Outlook:

- Daily Bias: Bearish

- Support: 101.67

- Resistance: 102.46

XAU/USD:

Key Takeaways:

- Earlier in the week, concerns over rising US debt levels supported gold, while elevated Treasury yields and a firm dollar limited its recovery.

- Uncertainty over the Fed’s rate path remains a key driver, with markets weighing the possibility of further tightening against a potential October pause.

Technical Outlook:

- Daily Bias: Bullish

- Support: 4,105

- Resistance: 4,183

WTI:

Key Takeaways:

- Oil supply concerns persist amid tensions in the Strait of Hormuz and uncertainty over potential US military action against Iran, despite Trump's comments ruling out strikes before the midterm elections.

- Hurricane Isaias forced the shutdown of 62.9% of current US Gulf of Mexico oil production, adding to supply disruption risks.

Technical Outlook:

- Daily Bias: Bullish

- Support: 87.97

- Resistance: 93.20

Calendar Watch:

- Preliminary University of Michigan Consumer Sentiment Index: The release will provide an update on consumer sentiment and expectations, offering further insight into household confidence.

- Boston Fed President Collins Speaks: Markets will monitor the remarks for additional insight into the Fed’s policy outlook, particularly amid uncertainty over the timing and pace of potential rate increases.

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