Oil Spikes on Gulf War Jitters but Pulls Back as Ceasefire Hopes Emerge

Brent and WTI futures surged on Tuesday on fears that Saudi Arabia and the UAE could be drawn directly into the war against Iran, but prices later eased as markets refocused on possible ceasefire talks. The short end of the curve remains sharply higher, while the back end is only modestly firmer, underscoring that the move is still driven primarily by near-term geopolitical risk.

After an initial war‑premium spike in recent sessions, crude markets are now trading headline-to-headline. Brent front‑month settled around USD 104.5/bbl on 24 March, up more than 4% on the day, while WTI May closed near USD 92.4/bbl, also up over 4%. The curve is strongly backwardated, reflecting acute short‑term supply risk from the Strait of Hormuz crisis and attacks on Gulf energy facilities, but expectations that part of these outages and logistics disruptions will normalize over time.

📈 Prices & Curve Structure

On 24 March, WTI May 2026 settled at USD 92.35/bbl, gaining USD 4.22 (+4.6%) on the day. The Jun and Jul 2026 contracts closed at USD 89.75 and 86.78/bbl respectively, while the strip gradually declines toward the low USD 70s by 2027 and high USD 50s by the early 2030s. Brent shows a similar pattern, with May 2026 at USD 104.49/bbl (+4.35%) and Jun 2026 at USD 100.23/bbl, before easing into the low USD 80s and 70s further out.

At an indicative EUR/USD of 1.09, this implies:

Contract	Benchmark	Settle (USD)	Approx. Price (EUR)	D/D Change (EUR)
May 2026	WTI	92.35	~84.7 €/bbl	+~3.9 €/bbl
Jun 2026	WTI	89.75	~82.3 €/bbl	+~4.0 €/bbl
May 2026	Brent	104.49	~95.9 €/bbl	+~4.2 €/bbl
Jun 2026	Brent	100.23	~91.9 €/bbl	+~4.0 €/bbl

The steep backwardation from May 2026 into 2027–2028 (around USD 15–20/bbl for WTI and slightly more for Brent) signals tight prompt fundamentals driven by war‑related supply disruptions and risk premia, while the market does not yet price a structural scarcity over the longer term.

🌍 Geopolitics, Supply Risk & Demand Signals

The latest leg higher in prices was triggered by reports that Saudi Arabia and the UAE are considering participating directly in the war against Iran. This follows weeks of escalating attacks on Gulf energy infrastructure, including strikes linked to South Pars and Kharg Island, and a severe disruption of flows through the Strait of Hormuz, a corridor that normally handles roughly a fifth of global oil trade.

Markets briefly priced in an extreme supply shock when Brent spiked above USD 119/bbl last week, but some of that premium has since unwound as the U.S. signaled exploratory talks on ending hostilities and as key producers rerouted exports via Red Sea outlets and overland pipelines. Still, Middle East output and export disruptions estimated in the mid‑single‑digit million bpd range keep physical balances tight and justify elevated front‑month levels and freight and insurance surcharges on Gulf barrels.

📊 Fundamentals & Product Markets

Futures data show exceptionally high trading volumes in the front WTI and Brent contracts, highlighting strong hedging and speculative interest around immediate war news. Diesel (gas oil) on ICE is also elevated, with April 2026 around USD 1,295/t and May at roughly USD 1,136/t, equivalent to approximately 1,145 €/t and 1,041 €/t, respectively. The gasoil curve is backwardated but begins to flatten and even soften beyond late 2028, reflecting expectations that refinery outages and logistics bottlenecks will be gradually resolved.

The pronounced backwardation across crude and middle distillates encourages inventory draws rather than builds, as carrying stocks forward is heavily penalized. That tightens prompt availability further and amplifies sensitivity to any additional supply shock in the Gulf or to shipping disruptions in Hormuz and Bab al‑Mandab. Meanwhile, macro sentiment has turned slightly less bearish after a sharp equity sell‑off; improved risk appetite has supported commodities, but the crude complex remains overwhelmingly driven by war‑related fundamentals rather than demand strength.

🌦️ Weather & Short-Term Demand

Weather is a secondary driver in the current environment, but it still matters for near‑term product demand. Temperatures across major OECD demand centers (U.S., Europe, Northeast Asia) are moving toward seasonal spring norms, capping heating oil demand and slightly easing distillate balances. However, air travel demand is soft in the Middle East and parts of Europe due to war‑related flight reductions and tourism disruptions, which partly offsets the crude‑bullish impact of regional supply issues.

📆 Market Outlook & Trading Ideas

• Near term (next 1–2 weeks): Price action is highly headline‑driven. Any confirmation of Saudi/UAE combat involvement or new large‑scale attacks on energy assets could push Brent back toward or above the 110–115 €/bbl area in EUR terms. Conversely, credible signs of ceasefire talks could trigger a sharp correction of 10–15 €/bbl in the front months.
• Curve structure: The current steep backwardation suggests value in selling front‑month rallies against buying deferred contracts for hedgers seeking to lock in long‑term supply costs, while pure flat‑price length at these levels carries high geopolitical risk.
• Risk management: End‑users should prioritize optionality via call spreads or flexible supply contracts rather than relying solely on spot purchases, given the potential for sudden transport or insurance disruptions in the Gulf.

📉 3‑Day Directional View (in EUR)

• ICE Brent front‑month: Bias mildly lower to sideways (~94–100 €/bbl) as the market consolidates the recent spike and watches diplomatic headlines.
• NYMEX WTI front‑month: Expected to track Brent with a stable EUR discount (~8–12 €/bbl), likely trading in an 82–88 €/bbl band.
• ICE Gas Oil front‑month: Slight downside risk from very elevated levels (~1,120–1,180 €/t), but still supported by refinery and logistics constraints in Europe and the Middle East.