Brent Crude Nears $110 as Hormuz Risk Outweighs Supply Fixes

Oil holds its gains despite supply fixes

The oil market spent mid-October showing a stubborn pattern. Governments and exporters kept adding supply or opening new routes, and prices kept climbing anyway. December Brent futures rose $5.14 over the week, nearly 5%, to settle at $109.86 a barrel after touching $110 on Friday.40 West Texas Intermediate gained almost 6% on the week.39 The rally came even though International Energy Agency members agreed to release the final 100 million barrels of their emergency stockpile commitment, including 20 million barrels of diesel, on top of an earlier pledge of 400 million barrels.32

Analysts across the market describe the same problem. Getting barrels out of the ground is no longer the main constraint. Moving them safely through the Strait of Hormuz and the surrounding waters is. Coverage disagrees on how long that lasts and how high prices can go. Taken together, though, the reporting points to a floor set by politics and shipping risk rather than by supply and demand.

Physical workarounds are real but limited

The supply picture has improved, and the bullish case has to account for that. Saudi Arabia increased flows on its East-West pipeline from 3.5 million barrels per day at the end of September to 5.8 million, sending crude to Red Sea terminals to protect its Asian customers.34 As exporters adjusted to the conflict and added shipping capacity, Persian Gulf exports were back near their 2025 average by late September.33 US output is at a record 13.83 to 13.86 million barrels per day, which partly replaces lost Middle Eastern supply.38

Each workaround has a weak point. Oxford Economics notes that September's attack on the same East-West pipeline, then carrying about 4 million barrels a day, showed that bypass routes are vulnerable too.36 Washington has looked at easing restrictions on some sanctioned tankers to relieve the shortage of ships, but Kpler estimates that only about 24 of 160 sanctioned supertankers could realistically return to normal trade. Many are too old, uninsured or blocked by other governments.39 The buffers are also thin. The US Strategic Petroleum Reserve is at its lowest level since 1982, according to both Yahoo Finance and Business Standard.3134 The Economic Times, summarizing the same Yahoo interview, gave the year as 1992.33 The 1982 figure has more support across the reporting.

The physical market looks tighter than futures prices alone suggest. Near-term physical Brent has traded above $130 a barrel while futures sit around $100 to $110.33 Kotak Neo's Kaynat Chainwala noted that the exchange-for-physical premium nearly doubled from 16.64 at the end of September to 31.38 on October 8. She also pointed to a Brent-WTI spread of about $11.59, which reflects freight and insurance costs that diplomacy alone won't remove.34 US stockpiles are falling as well. Commercial crude inventories dropped by about 8.56 million barrels in the latest weekly data.32

The disagreement over the floor

This is where forecasters split. William Blair's Neal Dingmann argues that a "super spike" is possible. In his view, the mid-cycle oil price has moved from $70–$80 to roughly $80–$90, with stretches above $100. He also expects diesel and heating fuels to set new records this winter.31 Heating oil futures, a benchmark for diesel, have more than doubled this year.31

Goldman Sachs takes a more measured view. It raised its December Brent target to $90 and its WTI target to $81, both below current prices. It sees $125 only if infrastructure is damaged, shipping attacks intensify, or the risk premium persists.31 Goldman puts Brent's geopolitical risk premium at about $22 a barrel, the second-highest monthly reading on record.39 Separate coverage cites a forecast that the global market moves into surplus in the fourth quarter and stays there through 2027. That forecast also puts the current risk premium at about $25.33 Oxford Economics expects Brent to average above $100 until mid-2027.36

The two camps disagree less about the facts than about how long the risk premium lasts. ING's Warren Patterson and Ewa Manthey describe a daily pattern in which prices fall early in the session and recover by the close. They argue that removing the premium entirely would take some kind of agreement between the US and Iran.32 Haitong Futures analysts also say that real de-escalation, not more stock releases, is what would bring prices down.39 Business Standard's analysis adds a political point. It cites reports that Iranian forces are adjusting the intensity of their attacks to keep prices high before the US midterms, alongside a record ten tanker strikes in one week.34

I think the cautious view is right on direction and wrong on timing. Supply relief is real, but none of the measures so far addresses shipping security. Until shipping becomes safer, Goldman's $90 December target looks more like a goal than a forecast. The near-term floor looks closer to $100 than to $90.

Oil feeds into the Fed decision

Oil prices directly affect the Federal Reserve's October 28 decision. The Fed raised rates by 25 basis points in September in a 12–0 vote, taking the target range to 3.75%–4%.1 Minutes released October 7 showed that most officials expected another increase by year-end but gave no timing.4 Markets have since moved away from an October hike. Futures priced roughly a 15% chance on Friday, October 16.2 That is down from around 70% in late September.7 A weak September jobs report, with just 29,000 new payrolls, did much of that work and pushed the expected hike toward December.8

The risk is that the market is too relaxed. CNBC's analysis argues that Chair Kevin Warsh, who has rejected traditional forward guidance, has left himself room to raise rates despite market pricing. He has also called the 2% target "firm."2 Admiral Markets lists Brent above $105–$110 as one possible trigger for a second straight hike.8 Brent has now reached that zone. Oxford Economics notes that higher oil prices have revived inflation concerns and strengthened expectations of tighter Fed policy.36 On balance, a hawkish hold is still the most likely outcome. But oil at $110 makes the press conference's tone more important than usual, since the Fed's quiet period began on October 17.8

Stocks: rotation, then a broad drop

Equities absorbed several shocks at once. On Friday the S&P 500 fell 1.09% to 7,659.44, and the Nasdaq dropped 2.14% to 26,140.03. Both closed below their 50-day moving averages.21 For the week, the Nasdaq lost about 4.5%, its worst week since June, while the Dow gained 0.7% as investors moved out of tech.26 Reports of the S&P 500's weekly loss differ. Investopedia gave 2%,29 and Yahoo's live blog gave both 1.95% and 1.4%.26 The roughly 2% figure appears in more of the coverage.

The main driver was worry about how AI spending is being financed, but oil turned a rotation into a broad sell-off. As Brent hit $110, the VIX rose to an intraday 22.31, its highest since June, and the share of falling S&P 500 stocks moved from a minority to about three in five.26 Treasury yields added pressure. The 10-year yield ranged from 5.329% to 5.037% during the week.27 Energy is still the market's top-performing sector this year.31

Bitcoin trades like a rate-sensitive asset

Crypto showed no sign of acting as a hedge. Bitcoin fell below $80,000 on Thursday for the first time in more than a month, reaching a low of $79,711 before rebounding to about $82,300.13 The drop wiped out about $930 million in leveraged positions, roughly $780 million of them longs, after US inflation came in at 3.7% and Treasury yields moved sharply.20 Demand from institutions has also weakened. Spot bitcoin ETFs were on track for a second straight week of outflows.18 Total crypto market value fell about 1.95% on the week to $2.67 trillion.11

When inflation data and oil prices push up expectations for Fed rates, bitcoin has fallen along with tech stocks. Analysts see $80,000 to $80,700 as the key support level and say a move back above $82,000 to $83,200 would improve the picture.20

What to watch

The next phase depends less on how many barrels reach the market and more on how safely they travel. Signs of a US-Iran agreement, fewer tanker strikes, or lower war-risk insurance costs would reduce the premium faster than any stock release. Religare's Ajit Mishra sees $115–$120 Brent if escalation continues.40 The Fed decision on October 28 will show whether policymakers treat $110 oil as a temporary shock or as a reason to raise rates again.