Oil prices climbed Thursday as renewed geopolitical threats and tight inventories outweighed easing global trade tensions.
Brent crude gained 17 cents, or 0.3%, to reach $68.69 per barrel by 11:50 WAT. U.S. West Texas Intermediate (WTI) rose 35 cents, or 0.5%, to $66.73.
Market analysts pointed to a blend of short-term risks and longer-term headwinds shaping the current rally. “Oil thinking has been distracted from the Middle East, and the reminders of Israel’s attacks on Syria and the drone attacks on oil infrastructure in Kurdistan are timely,” said John Evans of PVM Oil Associates.
Drone Strikes Slash Output in Kurdistan
Fresh instability emerged in Iraq’s semi-autonomous Kurdistan region. Drone strikes on oil installations cut production by up to 150,000 barrels per day, two local energy officials confirmed Wednesday. The damage forced multiple shutdowns and heightened fears of regional supply disruptions.
These attacks serve as a stark reminder of oil’s exposure to conflict in the Middle East, even as recent headlines have focused on trade diplomacy.
Inventories Remain Tight Despite Output Growth
Supply-side concerns also supported prices. The International Energy Agency (IEA) recently noted that production increases have not translated into higher inventories. “Markets are thirsty for oil,” the agency reported last week, signaling strong underlying demand.
UBS commodities analyst Giovanni Staunovo agreed. “Market indicators continue to suggest the physical market remains tight,” he said. However, he warned that escalating trade tensions still pose a risk to demand growth and could drag prices lower.
Trade Tensions Cool, but Uncertainty Lingers
U.S. President Donald Trump said letters detailing tariff rates for smaller nations would go out soon. He also hinted at progress with Beijing on illicit drugs and a potential trade agreement with the European Union.
Still, analysts remained cautious. “Near-term prices are set to remain volatile due to uncertainty over the scale of U.S. tariffs and their impact on global growth,” said Ashley Kelty of Panmure Liberum. He predicted prices may soften over the medium term.
U.S. Shale Under Pressure as Margins Shrink
In the U.S., shale drillers are starting to pull back. With WTI hovering near $65—a level considered borderline profitable—many private operators are reassessing new projects.
“In the mid-$60s, returns on new drilling begin to erode,” said Dwight Scott of Quantum Capital Group in a Bloomberg interview. He expects a slowdown, driven by inflation and trade-related uncertainty.
WTI has dropped 8% since January and sat at $65.82 on Wednesday. Scott, a former Blackstone executive, sees this as a temporary dip but admits the market remains fragile.
Dallas Fed Data Signals Industry Contraction
That fragility is now reflected in hard data. The Dallas Federal Reserve’s Q2 Energy Survey showed a sharp downturn across the oil and gas sector. Its headline business activity index slipped to -8.1. Oil production fell to -8.9, while gas output dropped to -4.5.
Service providers bore the brunt. Operating margins collapsed to -33.4, and cost pressures intensified. Input cost indices surged to 40.0, underscoring a worsening inflationary squeeze.
Hiring slowed, and overall sentiment worsened. The company outlook index dropped to -6.4. Meanwhile, the uncertainty index jumped to 47.1—its highest level since the 2020 pandemic crash.
Rig Count in Decline
The Baker Hughes rig count confirmed the downturn. Active U.S. rigs have fallen steadily since spring, from 589 in January to 537, a 9% decline.
Despite the pullback, many operators still expect WTI to average $68 by year-end. But that price leaves little room for error. With oilfield inflation rising, profit margins are razor-thin.
Scott believes the U.S. will maintain its lead in global oil and gas output—but only if prices rebound. “We need to get above the mid-$60s to justify more drilling,” he said. “Until then, the shale patch will remain cautious.”