Oil prices rose on Wednesday and were on course for a strong monthly gain as stalled U.S.-Iran talks kept geopolitical risk elevated, while tight fuel markets continued to support prices even as crude supplies from the Middle East recovered.
Brent’s November contract, which expires on Wednesday, was up 57 cents, or 0.6%, at $103.16 a barrel by 0944 GMT. The more-active December contract rose 94 cents to $97.10, while U.S. West Texas Intermediate crude gained 82 cents, or 0.9%, to $90.20.
Brent was heading for a monthly gain of about 14%, its biggest increase since July, while WTI was on course to rise roughly 4%.
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The widening gap between the two benchmarks has become another concerning feature of the market. The spread reached its widest level in four months as traders assessed potential U.S. restrictions on diesel exports.
Any restrictions could leave more diesel in the U.S. market, potentially pushing domestic inventories higher and reducing the incentive for refiners to process crude. That would put downward pressure on U.S. crude demand even as international oil markets remain supported by geopolitical and refined-product supply risks.
The conflicting forces highlight the unusual structure of the current oil market. Crude flows are recovering toward normal levels, but refined fuels remain tight, meaning the restoration of oil production and exports has not translated into a complete easing of the broader energy squeeze.
“Recovering crude flows should temper supply-driven price pressures, although persistent product shortages and elevated freight costs are likely to keep the broader energy market tight,” analysts at Japan’s MUFG said.
Saudi Arabia resumed oil tanker loadings from its Red Sea port of Yanbu on Tuesday after restoring operations on the East-West Pipeline, providing another indication that some of the supply disruptions caused by the Middle East conflict are beginning to ease.
Goldman Sachs estimates that Gulf oil exports recovered to 23.3 million barrels per day over the past week, roughly in line with their 2025 average. Exports doubled in September, according to the bank.
JPMorgan estimated that the 10-day average for total oil exports over the past five days stood at 20.5 million barrels per day, equivalent to 89% of 2025 levels.
The recovery is a huge boost because the oil market had been pricing in a substantial disruption to Middle Eastern supply. A sustained return of exports reduces the likelihood of a prolonged physical crude shortage and should eventually place downward pressure on benchmark prices.
But the improvement in crude availability has not fully resolved the fuel-market problem. Diesel and other refined products remain particularly sensitive to disruptions because refining capacity, shipping availability and regional inventories can become constraints even when crude itself is available.
The White House has urged the European Union to draw down emergency diesel inventories in an effort to lower global prices, according to sources.
U.S. President Donald Trump is also considering allowing sales of red-dyed diesel rather than imposing an outright export ban, potentially providing some price relief to consumers ahead of the November midterm elections. The measures underline the political and economic pressure created by elevated fuel prices. Diesel is critical to transportation, agriculture and industrial activity, making sustained shortages more consequential than movements in crude prices alone.
In the United States, crude and gasoline inventories rose last week while distillate stocks fell, according to American Petroleum Institute data cited by market sources. Investors were awaiting official figures from the Energy Information Administration, with analysts surveyed by Reuters expecting crude and product inventories to have declined.
Iran Diplomacy Remains The Market’s Biggest Variable
The prospect of a diplomatic breakthrough between Washington and Tehran has provided intermittent relief to oil markets, but those expectations weakened as talks aimed at ending the conflict stalled.
Qatar said Tuesday that it hoped shuttle diplomacy between Iran and the United States could produce a breakthrough.
Trump, however, denied reports from Axios and CNN that cited U.S. officials as saying he was prepared to offer Iran sanctions relief and release frozen Iranian funds in exchange for “concrete” steps on its nuclear programme.
The conflicting signals leave traders facing two opposing scenarios.
A diplomatic agreement could accelerate the restoration of Iranian oil exports and reduce the geopolitical premium embedded in crude prices. A breakdown in negotiations, by contrast, would leave the market exposed to continued disruption across the region.
That uncertainty is keeping traders focused on both physical supply data and political developments rather than treating the recent recovery in Gulf exports as evidence that the crisis has ended.
Oil Keeps Pressure on Bonds And The Federal Reserve
The oil market is also feeding directly into global bond markets because sustained energy prices threaten to prolong inflation.
U.S. Treasury yields eased on Wednesday after a sharp rise in the previous session, but remained at historically elevated levels. The 30-year Treasury yield fell four basis points to 5.553%, after reaching its highest level since 2002. The 10-year yield was down three basis points at 5.221%, while the two-year yield slipped one basis point to 4.876%.
Higher oil prices complicate the Federal Reserve’s policy outlook because an energy-driven inflation shock can make it harder for policymakers to reduce interest rates.
Markets had recently increased expectations for another 25-basis-point rate increase at the Fed’s October meeting, although those expectations eased on Wednesday after New York Fed President John Williams said there was “no need for urgency, and we have time to gather more information” before the meeting.
The CME FedWatch tool put the probability of an October increase at roughly 44% to 45%, down from around 70% earlier in the week.
Investors were also awaiting the Personal Consumption Expenditures price index, the Fed’s preferred inflation measure. Economists surveyed by Dow Jones expected monthly inflation of 0.3% and an annual increase of 3.7%.
The combination of expensive oil, resilient U.S. economic data and elevated government borrowing costs has therefore created a difficult backdrop for the Fed. Higher energy prices can slow economic activity while simultaneously making inflation more persistent.
Dollar Comes On Board with Strength
The same divergence in monetary-policy expectations has supported the U.S. dollar. The dollar remained close to its highest level of the year against the euro and was heading for its strongest monthly performance against the single currency in 14 months.
The euro was up slightly at around $1.135 but remained near a low reached in the previous session and was on course for a decline of almost 2.3% against the dollar in September. That would give the dollar a third consecutive quarterly advance against the euro.
A stronger U.S. economy and persistent inflation have encouraged markets to price a more restrictive Federal Reserve path than the European Central Bank, where growth remains weaker, and concerns about government debt have increased.
Some of that divergence narrowed on Wednesday. Williams’ comments reduced expectations for an immediate Fed move, while French data showed consumer inflation accelerating more than expected in September.
“I would still regard the current dollar strength as rather fragile, not least because it already appears over-stretched even relative to developments in the euro area-US interest rate differential,” said Thu Lan Nguyen, an FX analyst at Commerzbank.
The euro’s outlook will depend heavily on the relative paths of the Fed and ECB. ECB President Christine Lagarde’s comments earlier in the week were interpreted as pushing back against the prospect of consecutive rate increases, while options markets have increasingly reflected demand for protection against another decline in the euro.
Sterling meanwhile recovered from a three-month low to $1.3265 after revised data showed the British economy grew faster than initially estimated in the second quarter.
Markets are also watching German inflation data and the U.S. PCE report for further clues about the direction of monetary policy.
The Swiss franc was another notable currency mover, with the dollar trading near a 17-month high of 0.8333 francs. The franc has weakened as investors have sought alternative low-yielding funding currencies for carry trades.
The yen has become less attractive for that purpose following Japan’s currency intervention in July, repeated warnings from officials against excessive yen moves and an acceleration in domestic rate increases.
The result is a market increasingly driven by the interaction of three forces: the physical availability of energy, the inflation consequences of the Middle East conflict and the response of central banks to higher prices.
Recovering Gulf crude exports are limiting the risk of an outright oil supply shortage, but they have not yet eliminated tightness in refined products. Until fuel markets loosen materially or U.S.-Iran diplomacy produces a durable reduction in geopolitical risk, oil prices are likely to remain closely linked to inflation and interest-rate expectations across global markets.