Oil Hits 5-Week High and Global Bond Yields Hit Decades-High Levels as US-Iran Fighting Resumes

Since fighting between the U.S. and Iran resumed over the weekend after roughly a month of relative calm, oil markets have moved fast and the shock has now spread into global bond markets.

WTI crude settled at $90.22 a barrel on Tuesday, up 5.2% on the day and its first close above $90 since July, according to CNN. Brent crude settled at $94.65, up 4.6%, its highest close in over a month. By early Wednesday trading, WTI had briefly topped $92 overnight before pulling back to around $91, according to ZeroHedge, while OilPrice reported Brent at $95.68 in early Asian trade. Reuters, in a report carried by the Lufkin Daily News, put Tuesday's intraday move at $89.48 for WTI and $93.93 for Brent, a roughly 4% jump on the session.

Inventories Draining Fast

U.S. government data released Wednesday showed crude stockpiles fell 4.45 million barrels last week, more than the 60,000-barrel build analysts expected and more than the American Petroleum Institute's own estimate of a 2.6-million-barrel draw, according to ZeroHedge. Gasoline stocks fell 1.17 million barrels. Cushing, the key delivery hub, saw only a small 80,000-barrel build. Distillate stocks rose 796,000 barrels, the first build in five weeks, but East Coast distillate supplies are now at record lows and West Coast supplies are the lowest since May 2025, ZeroHedge reported.

Gasoline imports fell to 370,000 barrels a day last week, below levels seen at the same point in 2020. Diesel futures were trading near a 52-month high Tuesday, up about 51% over ten weeks, pushing the diesel crack spread, a measure of refining profit margins, to a record near $106 a barrel, according to Reuters.

The Strategic Petroleum Reserve fell another 3.12 million barrels last week, its biggest weekly draw since July, leaving it at 286.6 million barrels, according to the Business Times, citing Reuters. ZeroHedge reported the SPR is now at its lowest level since 1982. At the same time, U.S. crude production surged back to record highs and refinery runs hit their highest level in seven years, with Midwest refining volumes at an all-time record, ZeroHedge reported.

Analysts warning about depleted buffers and administration officials pointing to record output are describing the same market from two different angles, and both claims are accurate. Arne Lohmann Rasmussen, chief analyst at Global Risk Management in Copenhagen, told ZeroHedge the current setup is "a worse combination for the energy market than the situation we faced just a few days ago and even in April," because inventories are more depleted now. ANZ analysts cited by the Business Times made a similar point, warning that "the buffers the global oil market has been relying on are becoming exhausted." Neither claim is contradicted by the production and refinery records. It's possible for U.S. output to hit new highs while stored reserves keep shrinking because demand and export commitments are pulling barrels out faster than they're being stockpiled.

Bond Markets Catch the Spillover

The oil spike has pushed government bond yields to multi-decade highs across four major economies. Japan's 10-year yield hit 3% Tuesday for the first time since 1996. The UK's 30-year yield reached its highest level since 1998. Germany's 10-year yield hit its highest level since 2011, according to CNN. In the U.S., the 10-year Treasury yield hit 4.8%, the highest of President Trump's second term, and the 30-year yield reached 5.27%, just off the 5.3%-plus level it touched in August, its highest since 2007.

Tom Tzitzouris, head of fixed income research at Baird Strategas, told CNN: "The longer the conflict abroad persists, the greater the risk [of] long-run inflation." Investors are effectively betting that sustained high oil prices will keep the Federal Reserve and other central banks from cutting rates, or push them toward hikes, which raises borrowing costs on mortgages, auto loans and corporate debt.

Iran's Currency and the Strait

Iran's rial hit another record low Wednesday, trading at 2.20 million rials to the dollar, a 10% drop from last week's record, according to the Associated Press, carried by NPR. Sascha Bruchmann of the International Institute for Strategic Studies' Middle East office in Bahrain told NPR the standoff had been shifting slightly in the U.S.'s favor before this week's escalation, pointing to comments from U.S. Central Command's Adm. Brad Cooper that roughly 1,500 commercial vessels carrying 750 million barrels of oil had passed through the Strait of Hormuz in recent months, still far below prewar levels.

Hamidreza Azizi, a senior Iran analyst at the Crisis Group, cautioned that neither side can sustain the current back-and-forth indefinitely: "At some point, one of the sides may see a need to escalate in order to break this cycle... that could bring the two sides to a point that they have been trying to avoid until now, which is a full-scale war."

Shipping data from Kpler showed visible commodity vessel transits through the Strait held at just five per day Monday, well below the 10-day average of roughly 14, with none of those five liquid tankers, according to the Business Times. ANZ analysts estimated satellite tracking shows actual oil flow through Hormuz around 6 million barrels a day, still well below pre-conflict levels.

OilPrice reported that Axios described a new U.S. "tanker for tanker" policy, with American forces striking two Iranian tankers in the Strait, the first time the U.S. has targeted Iranian tankers as retaliation rather than as part of its existing blockade. Jordan's armed forces said they intercepted 13 ballistic missiles fired from Iran, destroying 10 with three landing in remote areas. Kuwait and Bahrain both reported intercepting Iranian drones. The IRGC claimed, via Iran's IRNA news agency, to have shot down a U.S. MQ-9 drone, a claim OilPrice noted remains unconfirmed.

Reuters polled analysts in August who expect oil prices to stay above $80 a barrel through 2026 given the shipping disruptions. Wednesday's confirmed EIA inventory draw and the SPR's fall to 1982-era lows will be the numbers traders watch most closely heading into the Fed's next rate decision, given how directly Tuesday's bond selloff was tied to inflation expectations tracking the oil price.