Oil prices recovered on Monday as traders weighed the prospect of additional Russian diesel supplies against escalating security threats in the Middle East, where attacks on Saudi Arabia and commercial shipping risk disrupting crude exports and prolonging the energy market’s supply squeeze.
Brent crude futures rose 69 cents, or 0.7%, to $105.41 a barrel by 0923 GMT, reversing earlier losses. US West Texas Intermediate crude gained 57 cents, or 0.6%, to $92.42 a barrel.
The competing forces highlight the uncertainty confronting energy markets as geopolitical tensions threaten production and transportation routes, while fresh announcements about Russian fuel exports raise the prospect of additional supplies. The market is also contending with weather-related disruptions in the United States and the potential consequences of higher oil prices for inflation, interest rates, and financial markets.
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The latest supply concerns followed attacks claimed by Iran-aligned Houthi militants, including a Saturday strike on Riyadh’s international airport that killed 13 people and wounded more than 300. Further attacks were reported on Sunday, adding to concerns about the security of Saudi Arabia and the wider Gulf region.
Commercial shipping has also come under renewed pressure. The United Kingdom Maritime Trade Operations reported that a tanker was struck by a drone near Oman’s Sohar port, while another vessel was damaged while transiting the Strait of Hormuz.
The incidents threaten to undermine a recovery in Middle Eastern crude exports recorded in September. The Strait of Hormuz is a critical passage for global energy shipments, and attacks on vessels moving through the waterway can increase insurance costs, disrupt tanker movements and discourage operators from entering the region.
The latest developments have therefore reinforced the supply risks supporting crude prices, even as the prospect of increased Russian diesel exports has weighed on refined-product markets.
Goldman Sachs Raises Oil Forecast as Geopolitical Risk Premium Grows
Goldman Sachs raised its December Brent crude forecast to $90 a barrel from $85, estimating that geopolitical risks were adding slightly more than $20 a barrel to prices.
The bank’s revised projection highlights the extent to which current prices are being supported by uncertainty over future supplies. With Brent trading above $105 on Monday, the forecast also suggests that Goldman expects some of the current risk premium to ease by December, assuming the market does not face a further deterioration in supply conditions.
The bank expects US crude prices to remain unusually low relative to Brent because of high shipping costs between the United States and Europe.
“We forecast WTI prices, which are unusually low vs Brent because of high US-Europe shipping costs, to average $81 in December 2026 and $73 in 2027,” Goldman Sachs said.
The gap between the two benchmarks reflects the importance of transportation costs and regional supply conditions in determining the prices received by crude producers. Even when global geopolitical risks affect both markets, differences in access to buyers and the cost of moving oil can produce substantial price gaps.
Supply disruptions in the Gulf of Mexico have added another complication. Shell, Chevron and BP were seeking to redeploy personnel and restore production at offshore platforms after Hurricane Isaias made landfall early on Saturday.
The recovery of those operations could influence the availability of US crude, although the immediate impact will depend on how quickly companies can safely return workers and restart affected facilities.
Taken together, the Middle East security situation and the US production disruption leave traders balancing the possibility of further supply losses against the potential for additional fuel exports from Russia.
Russian Diesel Exports Offer Relief, but Refinery Damage Raises Questions
ICE gasoil futures fell 4.3% to $1,419.50 per metric ton after US President Donald Trump said on Friday that Russia would immediately supply more than 300,000 metric tons of diesel, equivalent to approximately 2.25 million barrels, to US and global markets, with further volumes to follow.
The announcement provided a counterweight to concerns about crude supply, although analysts questioned how much additional fuel Russia could deliver given damage to its refining industry.
“The immediate impact of the deal is questionable, as Russia’s refining capacity has been severely reduced,” said Tamas Varga, an analyst at PVM.
Moscow has partially lifted its ban on diesel exports, allowing 500,000 tons, or around 3.7 million barrels, to enter international markets, Varga said. That volume is equivalent to roughly one day of US diesel consumption and about 13% of global demand, according to his estimates.
The potential release could provide some relief to a market facing tight supplies, but its significance depends on Russia’s ability to fulfil the announced volumes and sustain exports beyond the initial shipment.
A relaxation of export restrictions can make more fuel available internationally, but reduced refining capacity may limit the amount Russia can actually produce and ship. Analysts expect the timing of deliveries and the possibility of the additional volumes reaching markets experiencing the greatest shortages to determine the effect on prices.
Trump also announced unexpectedly on Sunday that Ukraine and Russia had agreed to an energy ceasefire. Ukrainian President Volodymyr Zelenskiy said he was still waiting for details, while Russia did not comment.
Without further clarification, the announcement offers limited certainty about whether attacks on energy infrastructure will stop, how any agreement would be monitored or whether the arrangement would materially improve fuel availability.
International Energy Agency chief Fatih Birol said member countries should assess whether additional diesel releases were necessary. He also called on countries that had not fully delivered previously pledged volumes to accelerate releases, prioritizing diesel.
His comments point to the continued importance of refined products in the current supply environment. While crude oil prices dominate market attention, shortages of diesel can affect transport, industrial activity and the cost of moving goods, amplifying the economic consequences of energy disruptions.
The latest Russian export announcement may ease immediate concerns, but it does not remove the broader uncertainty surrounding refining capacity, shipping security and the reliability of supply from major producing regions.
Oil Shock Feeds Through to US Treasury Yields and Mortgage Costs
The energy market’s volatility is also feeding into the US bond market, where rising Treasury yields are increasing borrowing costs and potentially triggering additional selling by investors hedging mortgage-backed securities.
Benchmark 10-year Treasury yields have risen about 130 basis points since late February, while 30-year yields have climbed 100 basis points. The increases have been driven in part by the war-related oil-price surge, which has intensified concerns about inflation and raised expectations that the Federal Reserve could increase interest rates multiple times over the next 12 months.
Higher oil prices can push up transport, manufacturing and household energy costs, making inflation more difficult to contain. If investors expect those pressures to persist, they may demand higher yields on longer-term government bonds to compensate for the risk that inflation will erode the purchasing power of future payments.
The increase in Treasury yields has coincided with a sharp rise in US mortgage rates. Thirty-year mortgage rates have reached a nearly three-year high of 7.4%, discouraging homeowners from refinancing existing loans and keeping many borrowers locked into mortgages obtained at lower rates.
That shift has implications for mortgage-backed securities, or MBS, which are pools of home loans through which investors receive cash flows from borrowers’ principal and interest payments.
When interest rates fall, homeowners are generally more likely to refinance, shortening the expected life of mortgage-backed securities as loans are repaid earlier. When rates rise, refinancing becomes less attractive, extending the expected life of those securities and increasing their sensitivity to further changes in yields.
Investors may respond by selling Treasury futures or entering interest-rate swaps that exchange fixed payments for floating-rate payments. These transactions, known as convexity hedging, can reduce the interest-rate exposure of mortgage portfolios but may also add selling pressure to an already weakening bond market.
Mike Riddle, chief executive of Chicago-based futures and options developer Eris Innovations, said the market contained a substantial number of mortgages originated over the past three years at rates relatively close to current mortgage rates.
“If mortgage rates continue to climb and the possibility of further policy tightening remains, the expected duration of those loans can respond meaningfully to the next substantial move in rates,” he said, adding that the adjustment would likely require additional hedging and generate further selling pressure in Treasuries.
The risk is that a rise in yields prompts mortgage investors to hedge their exposure, pushing yields higher and creating further incentives for hedging. Such feedback effects can amplify market movements even without a corresponding change in the underlying supply of government debt.
Derivatives Activity Signals Growing Pressure in Rates Markets
Recent trading activity has provided evidence of increased positioning and hedging in interest-rate markets.
By the first week of October, nine large block trades had been executed in CME-listed Eris swap futures linked to the Secured Overnight Financing Rate, each carrying at least $200,000 of exposure to a one-basis-point move in interest rates, Riddle said. The transactions suggested investors were adjusting positions in response to changes in the yield curve.
Daily trading volume in Eris SOFR Swap Futures reached consecutive records ahead of the Federal Reserve’s September 16 policy meeting, including transactions in which investors repositioned for an expected rate increase.
Open interest, which measures the number of outstanding contracts that have not been closed, climbed to a record 866,768 contracts on September 21, more than doubling the previous year’s levels.
Elevated derivatives activity does not by itself establish that convexity hedging is responsible for the Treasury selloff. However, analysts also pointed to the sharp underperformance of mortgage-backed securities relative to Treasuries and the widening of mortgage spreads as developments consistent with increased hedging pressure.
If mortgage securities perform particularly poorly while yields are rising sharply, investors may be adjusting their positions to manage the changing duration of their portfolios.
The interaction between energy prices, inflation expectations, Treasury yields, and mortgage-market hedging illustrates how a geopolitical supply shock can spread beyond commodity markets. Higher oil prices can increase inflation concerns, lift borrowing costs, and trigger financial-market adjustments that reinforce pressure on yields.