WTI crude surges 9% to $77.86 as Middle East tensions escalate

Oil markets repriced supply risk Monday as WTI crude posted its largest single-day gain since the US-Iran conflict began.

WTI crude surged 9% intraday to $77.86 a barrel on July 13, the biggest single-day jump since hostilities erupted, as renewed Middle East fighting threatened supply routes through the Strait of Hormuz.

"The market is pricing in a non-trivial probability of a sustained disruption to Gulf oil flows," said Helima Croft, head of global commodity strategy at RBC Capital Markets. "Each escalation raises the risk premium."

Brent crude also climbed, topping $80 a barrel on July 8 before paring gains, while WTI had traded at $75. The rally comes after a brief pullback — oil prices fell slightly following the initial July 8 spike, then rebounded as diplomatic efforts stalled. Heraeus Precious Metals noted the pattern "is a clear sign that the market expects this flare-up to be similar to others in which a couple of days of strikes and heightened rhetoric ultimately dissipate back into cautious and slow-moving negotiations."

The Strait of Hormuz chokepoint handles about 20 million barrels of crude daily, roughly a fifth of global consumption. A prolonged closure would push oil above $100, according to RBC estimates, while stoking inflation expectations and complicating central bank rate paths ahead of the Fed's July 29-30 meeting.

The latest escalation follows weeks of relative calm after the initial US-Iran conflict erupted in March. Oil had stabilized in the low $70s before the July 8 flare-up pushed Brent past $80 and WTI above $75. Monday's 9% surge marks the most aggressive single-session move since the conflict began, signaling traders are now pricing in a higher probability of extended disruption.

Supply risks mount as inventories tighten

US crude inventories have drawn down for three consecutive weeks, according to EIA data, with stocks at the Cushing, Oklahoma, storage hub falling to their lowest since April. The combination of declining domestic supplies and a threatened Gulf transit corridor has amplified the price response to each new headline.

The demand side offers little relief. European gasoline prices have surged since the Strait of Hormuz closure, pushing battery electric vehicle sales in Germany and France to record market shares of 28% and 30%, respectively, in June, according to Heraeus. US and Chinese BEV sales have lagged, but the fuel-price shock in Europe is accelerating the shift away from combustion engines, which could weigh on long-term oil demand even as near-term supply fears dominate.

Cross-asset fallout spreads

The oil spike has rippled across markets. Precious metals dropped sharply on July 8, with gold falling below $4,100 an ounce and silver below $60, before rebounding as the initial shock faded. The 10-year US Treasury yield edged higher on inflation expectations, while the dollar strengthened against currencies of net oil importers such as Japan and India.

For central banks, the oil surge complicates an already delicate inflation picture. The Fed's preferred inflation gauge, the core PCE deflator, stood at 2.6% in May, above the 2% target. Each $10 sustained increase in oil prices adds roughly 0.4 percentage point to headline CPI, according to Fed models, potentially delaying rate cuts that markets had expected to begin in September.

This article is for informational purposes only and does not constitute investment advice.