WTI Back Above $91 as War Premium Returns

As October WTI crude oil futures soar above $91, the market is witnessing a return of the "war premium." The price of the contract increased by $8.36 or 10.02% for the week, climbing past $93.14, its strongest level since late July. This rally is not due to a decrease in the premium, but rather because the barrels still in motion are subject to a supply route that can alter with the next headline.

The conflict between the United States and Iran intensified, with both sides exchanging their heaviest fire since July. Iran tightened shipping restrictions, while Kuwait faced missile and drone attacks. Israel also issued threats against Iranian energy infrastructure. Despite these developments, WTI did not rally just because every Gulf barrel stopped moving. Instead, it surged because the barrels in motion are exposed to a supply route that can change with every new development.

Iran's attacks on U.S. positions around the region and the expansion of Iran's list of non-compliant ships, which face fines, confiscation or detention, have not led to a significant drop in oil prices. Instead, the market has responded to the threat of ongoing attacks rather than the actual events. The supply system in the Gulf is not functioning normally, with only six commodity vessels transiting Hormuz on Wednesday, down from 11 the day before and below the recent 10-day average of about 13.

Despite Iraq increasing its exports, the additional barrels are moving under Tehran's terms, not a free market reopening. U.S. crude exports have risen, but domestic inventories have tightened, contributing to the current market dynamics.