Oil prices settled mixed Wednesday as optimism about a recovery in Middle East oil exports is offset by continued threats against shipping through the Strait of Hormuz and attacks targeting Saudi Arabia.
West Texas Intermediate crude fell 0.7% to $97.15 a barrel as the December contract moved to the front of the curve, while December Brent settled at $108.82 a barrel, up 3 cents from Tuesday's close. Both benchmarks traded higher earlier Wednesday before reversing course.
Shipping risks remained high as Iran's Islamic Revolutionary Guard Corps said Tuesday that two oil tankers caught fire after striking mines on the southern side of Strait of Hormuz. The Saudi-led coalition said Wednesday that it intercepted drones launched toward the kingdom, including one targeting the Eastern Province, a major oil-producing region.
Diplomatic efforts to end the U.S.-Iran conflict continue. Qatar's Foreign Ministry said Tuesday that contacts, visits and exchanges of messages between Washington and Tehran are ongoing.
"There's a big geopolitical risk premium baked into current prices," said Marcus McGregor, head of commodities research at investment management firm Conning. "If we get any semblance of an agreement, maybe after the midterm elections, you could see prices stabilize."
Any indication of diplomatic progress could trigger a pullback in oil prices, XS.com senior market analyst Rania Gule said in a note. But "investors need tangible signs of de-escalation, restored freedom of navigation, and reliable oil flows before substantially reassessing the geopolitical risk premium currently embedded in prices," she added.
Despite continuing attacks in the Middle East, oil shipments out of the region have surpassed prewar levels. Flows through the Strait of Hormuz and alternative export routes averaged more than 24 million barrels a day in the week through Oct. 18, above the prewar level of 23.3 million barrels a day, according to Kpler.
Alternative export routes have played a growing role in the recovery. Around 40% of Gulf oil shipments now bypass the Strait of Hormuz, up from 17% before the war, as Saudi Arabia and the United Arab Emirates make greater use of pipelines and other shipping routes, The Wall Street Journal reported.
However, refined-product exports have recovered more slowly than crude shipments. The International Energy Agency said Middle East refined-product exports remained below prewar levels, reaching 1.9 million barrels a day in September against 4.7 million before the conflict. The agency expects tight diesel supplies to persist well into 2027.
Tightness in refined-product markets is also reflected in elevated diesel refining margins. The Singapore gasoil crack spread, a measure of diesel's premium over crude, stood at $66.91 a barrel Tuesday, compared with an average of $18.16 in 2025, according to S&P Global Platts.
U.S. diesel futures fell 3.3% to $4.7633 a gallon on the New York Mercantile Exchange after the U.S. Energy Information Administration reported an unexpected 1.7 million barrel inventory build for last week. Retail prices remain high despite U.S. government measures aimed at easing tight supplies ahead of midterm elections, including waiving sanctions on Russian diesel exports.
"Post election I don't see much politically that can be done to lower prices," said Matt Sallee, head of investments at Tortoise Capital. With the depletion of global oil inventories, and Persian Gulf disruptions pushing up freight costs, product prices will remain high for the foreseeable future, he said.
On the demand side, China's apparent oil demand fell 15.2% from a year earlier to 12.75 million barrels a day in September, according to estimates from analysts at ING. The bank also estimated that China's crude inventories declined by around 16 million barrels during the month, based on production and trade data.
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