Oil Prices Near $110 as Hormuz Risk Defies Reserve Releases

A market that won't break lower

The oil market has spent October doing something that looks contradictory. More barrels are getting out, and prices keep rising anyway. Brent futures for December delivery rose $5.14 last week, close to 5%, and settled at $109.86 after touching $110 on Friday16. That was the first time Brent had reached $110 since May32. On the year, Brent is up about 80% and US crude about 70% since December 3113.

This is not a story about too few barrels. Persian Gulf exports had climbed back to roughly their 2025 average by late September, as exporters adjusted to the conflict and found more ways to ship crude13. Saudi Arabia's East-West pipeline went from 3.5 million barrels per day at the end of September to 5.8 million, sending crude to Red Sea terminals and away from the Strait of Hormuz14. On the policy side, International Energy Agency members agreed to release their last 100 million barrels of strategic stocks, 20 million of them diesel, on top of an earlier 400 million-barrel commitment12.

None of it has produced a price floor that analysts trust. ING's Warren Patterson and Ewa Manthey describe a repeating daily pattern: Brent drops early in the session and then wins back most of the loss by the close12. That pattern says a lot about where traders think the risk is.

Geopolitics is now affecting physical supply

The main reason the workarounds have not lowered prices is that the risk is no longer only on paper. In one recent week there were a record ten tanker strikes in and around the Strait of Hormuz, compared with a previous weekly high of six, and Brent peaked at $105.914. Houthi attacks on Saudi airports and a strike on an Aramco building in Dhahran kept the risk premium in place14. Reuters reported deadly weekend strikes on Riyadh's international airport that pushed Brent above $10636.

William Blair analyst Neal Dingmann made the point directly: geopolitical events have turned into physical disruptions, and short-term fixes such as releases from the Strategic Petroleum Reserve will struggle to work11. He said oil executives keep telling him the price floor has moved higher, with a midcycle range of about $80 to $90 instead of the old $70 to $80, and stretches above $10011.

The pricing data supports that view. The exchange-for-physical spread rose from 16.64 at the end of September to a cycle high of 31.38 on October 8 before easing to 24.35, which means buyers were paying a very large premium for immediate barrels14. Physical Brent for near-term delivery has traded above $130 while futures have stayed just over $10013. The Brent-WTI spread of about $11.59 reflects the freight and insurance costs that seaborne crude carries14. CNBC reported that shipping stocks reached all-time highs as those costs piled onto benchmark prices37.

In short, getting oil out of the Gulf is less of a problem than it was. Moving it safely and cheaply is still a problem. A Washington proposal to ease restrictions on some sanctioned tankers looks unlikely to help much: Kpler estimates that only about 24 of 160 sanctioned supertankers could realistically return to normal trade, because many are too old, uninsured or blocked by other governments20.

How big the risk premium is

Analysts broadly agree that the premium is large. Their estimates differ slightly. One account says Goldman Sachs puts Brent's geopolitical premium at about $22 a barrel, the second-highest monthly reading on record20. Another puts the figure at around $2513. Either way, that is more than double the $4 to $10 range analysts cited in February, when Brent was expected to average under $64 for 202618.

The bigger disagreement is about direction. Goldman raised its December Brent target to $90 from $85, still below where oil trades now. It expects the market to move into surplus in the fourth quarter and stay there through 2027, and it sees Brent at $125 only if infrastructure is damaged, shipping attacks intensify or the premium persists1113. Oxford Economics is more bullish and expects Brent to average above $100 through the second quarter of 2027. It argues that the premium, more than physical supply, is now the main thing keeping prices from normalising17. Religare's Ajit Mishra calls his outlook "cautiously bullish" and sees $115 to $120 if things escalate16. Dingmann talks about a possible "super spike"11.

On the main point, these views are compatible. Each one rests on the same condition: without a durable US-Iran arrangement, the premium does not go away. ING says that fully removing it would take an agreement between the two countries12, and Haitong Futures argues that only real de-escalation, not more reserve releases, can do it20. US-Iran talks are reportedly stalled16. There is also a political angle. Reports say Iranian forces are adjusting the intensity of their attacks to keep prices high ahead of the November US midterms14. If accurate, the premium is something an adversary is managing on purpose, and it would not fade on its own before the vote.

The buffers are also thin. The US Strategic Petroleum Reserve is at its lowest level since 19821114. One summary gave the year as 1992, but the primary reporting says 198213. US commercial crude inventories fell 8.56 million barrels in a single week, the largest drop since February12. Heating oil futures, a diesel benchmark, have more than doubled this year11.

Oil feeds into inflation and the Fed

This is where oil stops being only a commodity story. The Federal Reserve raised rates 25 basis points on September 16, voting 12-0, to a 3.75%-4% range. It was the first hike since July 20238. The September minutes showed most officials expect another increase by year-end4. The next decision comes October 28, less than a week before the November 3 midterms8.

Expectations for the October meeting have moved sharply. Late in September, futures implied roughly 70% odds of an October hike7. After a weak September jobs report, with payrolls up just 29,000 against a forecast of 90,000, those odds fell to the high teens8. Hot inflation data last week briefly pushed them back to about 45%, and they then dropped to 17%. Pricing for a hike by year-end stayed above 90%31. Chair Kevin Warsh said in Bangkok that he was not signalling a decision, and futures put October hike odds at about 15%2. CNBC's analysis argues that this may be complacent, since Warsh has rejected traditional forward guidance and calls the 2% target "firm, fixed"2.

Oil is the link. One pre-meeting scenario analysis named Brent above $105 to $110 as a possible trigger for a surprise October hike8, and Brent is now at about that level. J.P. Morgan Wealth Management's base case is a hold, with 50 basis points of total tightening still to come, and it says energy-driven inflation is a key swing factor5. Oxford Economics notes that higher oil has revived expectations of tighter US policy, which has supported bond yields and the dollar17. Fed officials entered their blackout period on October 178, so the oil market is now the main source of new information before the meeting.

Stocks: energy gains, tech losses

Equities absorbed both pressures. The S&P 500 fell about 2% last week, its worst week since June, as Brent's run to $110 coincided with doubts about the AI trade32. Bloomberg reported a 1.1% drop on Friday, with a collapse in CoreWeave shares deepening the tech selloff34. Weekly figures for the Nasdaq 100 vary by outlet, but all describe heavy losses, and one report said the index fell every day of the week32. Energy was Friday's best-performing sector, and Exxon and Chevron each rose about 2.5%32. Energy is the top-performing S&P sector this year11.

The 10-year Treasury yield, around 5.10%, matters as much as crude31. Yields swung from about 5.33% to 5.05% within 24 hours after the CPI report31, and they had already reached their highest level since 20024. StoneX names the main cross-asset risk plainly: oil above $100 keeps inflation expectations and yields high, which cancels out the relief stocks would otherwise get from lower Fed-hike odds39. The S&P 500 is still only about 2% below its October 6 record32, so this is a loss of momentum, not a collapse.

Bitcoin is trading as a risk asset

Crypto has followed the same macro pressures and has not acted as a hedge. Bitcoin briefly fell below $80,000 on October 15-16 before recovering to around $81,500 to $81,700. Its weekly range was roughly $79,700 to $84,36028. Coverage linked the decline to the US inflation reports24, and roughly $1 billion in leveraged positions were wiped out over a few days25. Earlier coverage connected the weakness directly to oil above $100, elevated Treasury yields and spot ETF outflows26. One report counted $681 million in weekly ETF outflows23. By October 18, total crypto market value had fallen 2.75% to $2.76 trillion, with Bitcoin near $81,80027.

The pattern is consistent. In late September, Bitcoin rallied above $85,000 as oil prices and yields fell26. When crude rose again, it gave up those gains.

What to watch

Across these markets, Brent's floor looks firm until diplomacy changes the picture. Supply workarounds are capping prices, not cutting them. Forecasts for a fourth-quarter surplus may prove correct over the longer term, but in the near term they depend on tanker attacks easing, which the current reporting does not show. For the next two weeks, a firm oil price raises the risk of a hawkish surprise on October 28, keeps Treasury yields near multi-decade highs and weighs on rate-sensitive assets, Bitcoin included. A real US-Iran breakthrough could quickly reverse much of that, and investors should treat it as the main catalyst rather than the next reserve release.