Crude oil climbed as multiple key market indicators pointed to tight supply, overshadowing signs of progress in diplomatic efforts aimed at reopening the Strait of Hormuz.
Brent crude futures settled near $107 per barrel after rising as much as 5% during the session. Prices initially gained on hawkish remarks from Iran, then pared some of those gains after reports emerged that U.S. and Iranian negotiators were exploring a phased agreement. Under such a deal, Iran would reopen the vital energy transit corridor, while the United States would lift its economic blockade on Iranian ports.
Although the news sparked optimism about a diplomatic resolution to the conflict, doubts persisted. The two sides had previously appeared close to a breakthrough, only for talks to ultimately collapse. As a result, many traders are reluctant to adjust positions until they see a clear increase in crude supply entering the market.
"We have seen this movie many times before," said Pavel Molchanov, an analyst at Raymond James, referring to previous instances when breakthrough signs ultimately failed to materialize. "Seeing is believing. We need to see something substantive."
Meanwhile, indicators reflecting spot market supply conditions showed extreme tightness. Oil traders on Thursday paid a record premium to secure immediately deliverable crude from the largest U.S. storage hub. At the same time, the discount of U.S. WTI to Brent widened to its largest since May, signaling that overseas buyers are grappling with the prospect of scarce supply.
Earlier, oil prices rose after a senior Iranian military official said Iran could expand the war to the Indian Ocean if the United States or Israel resumed attacks. Meanwhile, Saudi Arabia was once again targeted by Houthi attacks.
WTI futures settled up 2.7% at $94.61 per barrel. Brent November futures settled up 3.4% at $106.60 per barrel.
Traders are also closely watching Saudi Arabia's exports. Iran-backed Houthi forces launched another attack, and Saudi Arabia said it intercepted missiles fired toward the Red Sea port of Yanbu. As European energy prices surged, French President Macron said France would send troops to defend Yanbu.
Nevertheless, some crude continued to flow out. Saudi Arabia's September crude exports rose to their highest level since the Iran war broke out.
At the same time, fuel markets have been hit harder, adding to consumer burdens and heightening central banks' concerns about price pressures. Reports said U.S. Energy Secretary Chris Wright has told oil industry executives to prepare for possible diesel export restrictions, though no final decision has been made. Trump's core advisers are divided on the matter, while oil company executives have warned against such a measure.
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