This week’s oil price surge sharply raised the odds of a Fed interest rate hike next week and re-launched the recession conversation, for the first time since the early weeks of the Iran war.
The price spike this week saw Brent Crude prices topping $100 per barrel for the first time since July and the U.S. benchmark, WTI Crude, exceeding $100 a barrel as well, after the U.S.-Iran tensions escalated again with no talks of a deal in sight.
For six months during the Iran war, the global and U.S. economies have remained resilient in the face of the worst energy market disruption in history, with oil and LNG flows choked at the Strait of Hormuz.
Many countries released oil stocks from strategic reserves to fill the gap left by the restricted supply from the Middle East, China slashed its crude oil imports and limited fuel exports, and demand destruction through the high oil and fuel prices did the rest of the work to keep the oil market relatively subdued since March, with occasional spikes when tensions flared up in the Persian Gulf.
Most of these cushions have now vanished. In the United States, for example, crude stocks in the strategic reserve are at their lowest level since the early 1980s.
Separately, China eased its restrictions on fuel exports and returned to buying more crude, with imports rebounding from the decade-low seen in June.
Crude flows from the Strait of Hormuz have somewhat recovered to an estimated half to two-thirds of pre-war levels, but fuel supply remains severely limited. Combined with refineries outside the Middle East and Russia unable to offset the loss of supply from these two regions, the stress in fuel markets became much stronger than on crude oil prices.
As a result, diesel and gasoline prices rallied at the end of the summer, with U.S. gasoline prices at a record high for this time of year, when they would typically drop due to lower seasonal demand.
The price of diesel, the main fuel of the economy, has just hit the $6 per gallon average in the United States for the first time ever, after breaking the all-time record of $5.85 last week.
The spike in crude and fuel prices are pushing up Treasury yields and longer-term borrowing costs, while the Fed could move to anticipate an inflation shock by raising its key interest rate as soon as next week.
The word ‘recession’ started creeping into the conversation, again.
It’s a very distant prospect, for now, but should oil and fuel prices spike further, the odds would rise, according to Goldman Sachs.
The investment bank had a 30% chance of recession within 12 months back in March, at the start of the Middle East conflict. Six months of resilient global and U.S. economies in the face of the supply disruption and the cushions the world had in recent months have lowered the odds to 15% now.
“We've scaled back our estimate of 12-month recession risk. We had that at about 30% back in March. We've got it at 15% now, but yeah, if we were to see another shock, we'd raise that again,” Jan Hatzius, Goldman Sachs Chief Economist, told Yahoo Finance this week.
Recession may be a distant prospect, but an interest rate hike is certainly not.
The CME FedWatch key rate gauge showed that as of September 10, traders put the chances of a 0.25-basis point hike at Fed’s meeting next week at 72.4%, up from 49.4% a week earlier.
Economic growth and consumer spending would also be hit if prices remain this high or spike further, according to Goldman Sachs.
The Wall Street bank currently projects about 1.5% GDP growth in the second half of the year, “but that does not build in another major shock,” Hatzius told Yahoo Finance.
“If we had a major increase in gasoline prices, then we probably take that down because that is very directly relevant for consumer real income.”
Gasoline prices directly affect consumer spending, but record-high diesel prices translate into higher prices of goods and accelerate inflation.
“Not every day are new all-time records set, and this will be a particularly painful one for the economy that may not even be immediately felt, but record diesel prices will impact every cargo, shipment, every delivery Americans are taking, and are likely to reignite inflation up and down the supply chain, said Patrick De Haan, head of petroleum analysis at GasBuddy.
“And for now, it comes at a time of year when diesel prices also traditionally rise, adding more pain. I suggest Americans anticipate a costlier holiday season, as it appears diesel prices could continue climbing as geopolitical tensions continue to remain a main factor.”
By Charles Kennedy for Oilprice.com
StanChart Warns Oil Is Now Built for Sharper, More Frequent Spikes
By Alex Kimani - Sep 13, 2026
- Oil prices briefly approached $110 as hopes for a quick U.S.-Iran resolution faded, with Standard Chartered expecting continued volatility and increasingly sharp upside price spikes.
- Diesel, gasoil and jet fuel remain particularly tight, as depleted inventories, limited spare capacity and logistical disruptions leave refined products especially vulnerable.
- Europe’s gas crisis is also intensifying, with prices above €81/MWh, storage at a 15-year seasonal low and Qatari LNG exports through Hormuz still severely constrained.
Oil prices hit nearly $110 per barrel on Thursday for the first time since July, with no end in sight for the Middle East conflict. The IRGC announced on Wednesday that it had attacked and heavily damaged eight oil tankers and two U.S. Navy destroyers in the Strait of Hormuz, in retaliation after the U.S. military destroyed five IRGC-linked oil tankers in the Gulf of Oman on Tuesday night. CENTCOM has, however, denied the IRGC claims. Hopes for a quick resolution to the war have also faded after U.S. President Donald Trump said that the war is unlikely to end before the midterm elections in November, while advisors have allegedly warned him the war could last for the rest of his term. By Friday morning at 7:10 a.m. ET, Brent crude was trading at $103.58, while WTI was trading at just over $98. And now oil and commodity analysts at Standard Chartered have predicted that the ongoing sharp oil price gyrations on headlines will continue through the third quarter amid the ongoing stalemate in the US-Iran conflict, with little sign that diplomatic progress will relieve export restrictions through the Strait of Hormuz.
StanChart says middle distillates remain extremely strong, with some venues under extreme stress as heat and drought compound logistical bottlenecks. The bank expects the strength in middle distillate cracks (the price difference between a barrel of crude and the fuels a refinery makes from it) to continue, with diesel, gasoil and jet outperforming gasoline. Expectations that the conflict keeps dragging on are pushing some of that strength into longer-dated contracts, StanChart says. The bank forecasts oil averaging $77.50 a barrel in 2027 on returning demand (particularly from China's imports) and the need to both refill and expand depleted strategic reserves.
Meanwhile, the 42nd annual APPEC (Asia Pacific Petroleum Conference) in Singapore concluded on Thursday, with market participants appearing increasingly positioned for a prolonged Middle East conflict.
According to StanChart, China’s rebounding appetite for crude imports, alongside its ability to redirect refined product supplies to increasingly tight Asian markets, has emerged as an important potential source of flexibility in global oil flows. Consumers are increasingly placing greater value on optionality across crude grades, suppliers, refining configurations and product sources after repeated disruption reshaped established trade flows.
The energy experts see oil markets remaining vulnerable to oil price spikes: whereas alternative barrels can often be found, there is progressively less spare capacity, inventory and logistical slack available when multiple disruptions occur simultaneously.
StanChart says the price implication is increasingly asymmetric, with a market characterized by more frequent and sharper upside price spikes, even if rallies are subsequently faded. The upside tail is getting fatter, with volatility commanding a greater premium. This implies that refined products will continue to be more vulnerable to disruptions than crude.
At the same time, Europe’s natural gas rally is showing little signs of slowing down, with prices rising above €81/MWh on Thursday, the highest level since December 2022 in large part due to the Middle East disruptions. A Qatar-loaded LNG carrier sailed through Hormuz on 8th September bound for Pakistan. The transit followed several empty Qatar-linked LNG carriers returning towards the Persian Gulf, providing the clearest evidence yet that Qatar may be testing the feasibility of restarting exports through the waterway. However, StanChart notes that substantial uncertainty remains around whether this represents the beginning of sustained exports.
Outbound LNG flows from the Persian Gulf remain well below pre-war levels, while QatarEnergy recently extended force majeure on LNG deliveries to European and Asian buyers into October and November. Qatar has also continued operating Ras Laffan at reduced rates, keeping equipment operational and retaining the flexibility to ramp up more quickly if conditions permit. StanChart says a short-term spurt of exports of LNG already loaded onto vessels inside the Gulf is possible without signalling a sustained recovery in Qatari supply, noting that repeated safe passage alongside evidence of a broader production ramp-up before the markets materially reduce the supply-risk premium embedded in European gas prices.
Meanwhile, stronger Continental Northwest Europe (CNWE) storage injections, alongside fresh unplanned curtailments at key Norwegian gas assets, have tightened Europe’s gas balance. European storage stands at just 66% of full capacity, 12 percentage points lower than the same period last year and marking a 15-year low for this time of year. To exacerbate matters, the deficit is heavily concentrated in Europe's largest economies, with Germany’s inventories at 54% while the Netherlands is at 48%.
Experts have warned that Germany could see a demand-supply gap as wide as 25% on peak January days if winter temperatures come in lower than expected.
By Alex Kimani for Oilprice.com
