Oil prices experienced a sharp rebound on Wednesday, with Brent crude futures for October climbing 7.5% to $87.84 per barrel and U.S. West Texas Intermediate (WTI) crude rising 6.5% to $87.82. This surge followed a three-day sell-off that had erased approximately 15% from both benchmarks. The increase was primarily driven by escalating geopolitical tensions in the Middle East after the U.S. Central Command (CENTCOM) reported that Iran's Islamic Revolutionary Guard Corps (IRGC) attempted a missile strike on U.S. forces, which was intercepted.
U.S. President Donald Trump vowed a forceful response, stating Washington would retaliate by "hitting them hard." This threat materialized in U.S. and Saudi forces conducting precision strikes against Iran-backed groups in Iraq and further U.S. retaliatory strikes on Iranian targets after the alleged attack on a U.S. base in Jordan. These events reignited fears of supply disruptions in the crucial Middle Eastern oil shipping routes, particularly the Strait of Hormuz, which mediates 20% of global oil and natural gas shipments and is again effectively closed.
The oil price rally also found support from signs of tightening U.S. crude inventories and speculation about OPEC+ potentially delaying production increases. The U.S. Energy Information Administration reported a larger-than-expected draw of 7.2 million barrels in commercial crude inventories for the week ended July 24, against expectations for a 0.7 million-barrel build. Strategic Petroleum Reserve holdings also fell to their lowest level since March 1983. Meanwhile, drone strikes caused fires on two natural gas vessels at the Egyptian port of Damietta, further highlighting regional instability.
Several countries across the region, including Jordan and Kuwait, reported missile or drone attacks, with a Chinese firm's building in Kuwait struck and a worker killed. Saudi Arabia also accused Iraqi militias of drone attacks on its oil facilities. These widespread incidents underscore the difficulty of de-escalating the five-month conflict, which has already jolted the world economy, driven up fuel prices, and strained U.S. stockpiles of sophisticated munitions.
