Wall Street Is Pricing a $100 Oil Shock Without an Energy Crisis

Brent crude approached $108 a barrel before falling to $104.74 on Tuesday, still below the $120 reached during the April escalation.

West Texas Intermediate traded at $91.83 after President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz and end the conflict.

Kpler tracked 33.7 million barrels of crude leaving the Strait of Hormuz in the week beginning September 20, little changed from the previous week.

Saudi Arabia and the United Arab Emirates exported a combined 12.8 million barrels a day in September, their highest level since February, while regional flows remained below pre-conflict levels.

The 10-year Treasury yield reached 5.246% on Tuesday and the dollar index rose 0.3% to 101.5. Futures put the probability of another Federal Reserve rate increase in October at about 70%, with oil still trading above $100.

The S&P 500 lost 0.8% on Monday as Treasury yields and crude moved higher. By Tuesday, U.S. stock futures had turned positive as Brent retreated from its intraday high without falling below $100.

More Oil Is Reaching Markets Without Hormuz

Oil flows through the Strait of Hormuz have fallen by more than half from pre-conflict levels. The waterway handled 20.9 million barrels a day in the first half of 2025, compared with 9.7 million in September.

Kpler put total Middle East crude exports at 16.3 million barrels a day during the month, 3.2 million below February.

Saudi Arabia’s East-West pipeline can move 7 million barrels a day toward the Red Sea, with about 5 million available for export. Drone attacks halted the line earlier in September, but operations restarted this week at around 2.65 million barrels a day.

Kpler expects throughput to reach between 3 million and 4 million before returning to the pre-attack level of 5.5 million. Yanbu is loading roughly 2 million barrels a day again.

The UAE can move crude directly to Fujairah on the Gulf of Oman through its 1.8-million-barrel-a-day Abu Dhabi Crude Oil Pipeline.

The line was already carrying oil before the latest disruption, leaving only part of its capacity available for additional exports when Hormuz traffic fell.

Atlantic Basin crude exports increased by 3.5 million barrels a day from February, according to the International Energy Agency.

Higher volumes came from the United States, Brazil, Canada, Kazakhstan and Venezuela, adding supply outside the Gulf as Middle East production remained below pre-conflict levels.

Global production in July was 6.3 million barrels a day lower than a year earlier, with 8.3 million barrels a day of Gulf output still shut in. By September, Middle East crude exports had recovered to almost 80% of their pre-conflict level.

Trump’s Iran Decision Still Moves the Marginal Barrel

Iran offered to restore commercial traffic through the Strait of Hormuz and suspend attacks on Gulf energy infrastructure in a proposal delivered through intermediaries.

Tehran linked the offer to an end to U.S. and Israeli military operations. Washington sought commitments covering Iran’s nuclear and missile programs, and President Donald Trump rejected the Iranian terms on Monday.

Washington and Tehran continue to communicate through intermediaries rather than direct talks.

Iran has included the reopening of Hormuz in a wider settlement, while Trump has said U.S. military operations can continue without an agreement.

Crude rose after Trump rejected the proposal before giving back part of the increase on Tuesday as Middle East exports recovered.

Near-term Brent contracts continue to trade above later deliveries, keeping the futures curve in backwardation.

Oil options remain more expensive on the upside than before the conflict, with traders paying for protection against another increase in crude. Longer-dated Brent remains below the levels reached during the first escalation.

$100 Oil Is Reaching Treasury Yields and the Dollar

The two-year Treasury yield approached 5% on Tuesday after climbing nearly 60 basis points in September, its largest monthly move since early 2023.

The 10-year touched 5.27% on Monday, a level last reached in 2007, before easing to about 5.25%.

Five-year inflation breakevens stood at 2.33% on Monday and the 10-year measure at 2.34%. Over three days last week, the 10-year real yield moved from 2.62% to 2.85%.

The Federal Reserve raised its target range by a quarter point this month to 3.75%-4.00%. Consumer prices increased 3.4% in the year through August and 0.4% from July, with gasoline accounting for more than a third of the monthly rise.

By Tuesday, futures assigned about a 70% probability to another quarter-point increase in October.

The dollar index reached 101.5 on Tuesday, up 0.3% on the day and 2.8% from its September low. The euro fell to a three-month low of $1.13325 and sterling traded at $1.3226.

The Oil Shock Is Becoming a Cost-of-Capital Trade

The S&P 500 energy sector has gained more than 20% since the conflict began. Airline shares have fallen, while higher Treasury yields have weighed on real estate and other rate-sensitive stocks.

Investment-grade credit spreads remain near historically tight levels, and high-yield spreads have widened only modestly.

Corporate bond yields have increased alongside Treasury yields without a comparable widening in credit spreads.

Investment-grade companies are still selling bonds. New issues are clearing the market at higher yields than before oil returned above $100.

The equity market has rewarded energy producers while corporate credit remains open to borrowers. What has changed more substantially is the rate companies must pay to raise debt.

The $100 oil shock has reached Wall Street through financing costs without producing a broad corporate credit selloff.