Crude futures rallied in midday trading on Wednesday as fighting between the US and Iran escalates in the Middle East, threatening to worsen the ongoing impairment of global energy supplies.
Front-month West Texas Intermediate futures gained 2.9% to $95.71 per barrel, while Brent futures climbed 3% to $95.71/bbl.
Soojin Kim, research analyst at MUFG, said that with military action targeting tankers and energy infrastructure, the threat of deeper disruption to Gulf exports risks tightening markets further and pushing Brent back toward triple-digit levels.
US distillate fuel inventories are forecast to fall below 100 million barrels in September and remain below the five-year low through much of 2027, the Energy Information Administration said in its latest Short-Term Energy Outlook released Wednesday.
The agency said that tight global supplies of distillate fuels such as diesel have pushed up domestic prices and bolstered US exporters to increase shipments.
The EIA projected that global distillate production will remain below last year's levels in the coming months, contributing to low US diesel inventories and elevated diesel prices.
Tightness in the global distillate market has raised domestic prices and incentivized US exporters to increase distillate exports, the EIA said in its September 2026 STEO.
On Tuesday, the US Central Command said that its forces destroyed five Iranian crude oil tankers in retaliation for attempted attacks on an American warship.
Centcom said that the US warship successfully evaded the attempted Iranian attacks and continued to patrol regional waters.
Iranian media said that Tehran, in response, targeted two US warships and eight oil tankers in the Persian Gulf, marking the biggest wave of tit-for-tat attacks on vessels in the strategic waterway by both sides since the onset of the Middle East conflict in February.
The UK Maritime Trade Operations said on Wednesday that a tanker was struck by a drone in Iraqi territorial waters. The UKMTO also reported that several merchant vessels in the Gulf had been hit by disabling fire overnight.
The maritime security agency said a vessel at anchorage off Dubai was listing, possibly taking on water after being struck by a projectile.
The escalation reinforces the view that "we are still some way from a restart in talks," ING strategists said, adding that, in the meantime, the market is likely to continue to price in a sizeable risk premium.
Meanwhile, the developments come as Yemen's Iran-backed Houthis target energy facilities in Saudi Arabia.
On Tuesday, Saudi Arabia's Foreign Affairs Ministry said Yemen's Houthis targeted civilian and economic assets in the cities of Abha, Khamis Mushait, Jazan and Najran. Over 70 civilians were injured in the attacks, the ministry said.