Oil prices pulled back on Friday but still posted sharp weekly gains, with Brent crude and US crude each up more than 3% for the week as fighting across the Middle East keeps traders paying a fat risk premium on every barrel.
The Friday dip came after a week of steady climbs. Brent had settled at $101.21 a barrel on Wednesday, its first close above $100 since July and its highest closing level since May 22, after US forces struck Iranian oil tankers and Iran-aligned Houthis attacked sites inside Saudi Arabia. US crude settled at $96.05 the same day. Both benchmarks are up more than 65% since the start of the year, a move that has reshaped everything from airline hedging books to central bank meeting agendas.
What Is Driving the Move
The supply picture has deteriorated on several fronts at once. Houthi attacks on Saudi territory, including a strike on an Aramco distribution center, have widened a conflict that had already slowed tanker traffic through the Strait of Hormuz. US strikes on Iranian crude carriers added a direct enforcement dimension, and shipping through the strait remains well below normal levels. Yemen’s Iran-aligned leadership has framed the attacks as retaliation, and each new strike has pushed insurance costs for Gulf shipping higher.
Analysts have been arguing about how much oil is actually moving. US officials have cited Middle East crude flows near 17 million barrels a day in recent public statements, while independent tanker trackers put the figure far lower, closer to 4.6 million barrels a day. The gap matters for anyone trying to price the market, and the disagreement itself has added to volatility. When official numbers and commercial tracking data diverge this widely, traders hedge both scenarios, which shows up as wider option spreads and choppier session-to-session moves.
The Inflation Feedback Loop
Higher crude is already feeding through to pumps and heating bills, which puts central banks in an uncomfortable spot. August CPI data released Friday matched forecasts, a small relief after four straight losing sessions on Wall Street driven partly by the oil move. Stocks rebounded on the print, but Fed hike odds for the September meeting still sit near 70% in futures pricing, with bond yields close to cycle highs.
The European Central Bank raised its inflation forecast to 2.6% for this year in its latest round of projections, citing energy prices, and traders now expect at least two ECB hikes before year end. The Bank of England and the Bank of Japan both held rates at their most recent meetings while they wait to see how energy costs feed into wage and price setting. Before the conflict escalated, the BOJ had been widely expected to consider a hike as early as this month, a pivot that would have ended years of near-zero rates.
Bank of England Governor Andrew Bailey summarized the bind plainly when the BoE held: war in the Middle East has pushed up global energy prices, he said, and if the increase lasts it will feed into household energy bills later in the year. That sentence could describe the position of every major central bank right now.
Forecasts Keep Moving
Sell-side forecasts have swung with the headlines. Goldman Sachs cut its fourth-quarter Brent forecast to $80 a barrel earlier this year when a US-Iran peace track looked possible, citing reduced tail risk. That forecast is now badly out of date. The US Energy Information Administration, by contrast, expects Middle East supply disruptions to persist through the end of 2027 and has been running a 2026 Brent average near $87, a figure the latest price action is quickly overtaking.
The International Energy Agency’s longer-term view has not changed: global supply is set to grow by around 8 million barrels a day next year against demand growth of roughly 2 million, a glut that would normally cap prices. The agency’s analysts note the glut assumes Gulf exports eventually normalize, an assumption the current fighting keeps testing. Industry officials also caution that a full return to pre-war production and refining levels, if it ever comes, would take months or years, not weeks.
What Traders Are Watching
The next set of catalysts is crowded. Tanker traffic data through Hormuz is the single most watched series, since a sustained reopening would deflate the risk premium quickly. Any Houthi escalation against Saudi export infrastructure would do the opposite. On the demand side, the CPI print has already landed, but Fed officials speak through the blackout ahead of the September meeting, and futures still price a hike rather than a hold.
For consumers, the pass-through is arriving. Gasoline prices in the US have climbed with crude, and European natural gas, while off its worst levels, still trades at roughly double its pre-conflict price. Economists at several banks have started trimming growth forecasts for the fourth quarter on the energy drag, with the euro area seen as most exposed given its import dependence.
The market’s own message is mixed. Friday’s pullback suggests some traders think the worst is priced, while the weekly gain says the premium is not going anywhere while tankers stay slow. With the Fed deciding in a week and the conflict showing no sign of settling, both barrels and rates markets look set for more violent two-way moves, and anyone betting on calm is taking the contrarian side of the trade.