Oil Price Rebounds Above $110 After Sharp Reversal; What Is Driving Crude Higher Today?

Oil prices rebounded above $110 a barrel on Wednesday, October 21, after a sharp reversal in the previous session, as concerns over Middle East supplies returned and US crude inventories recorded another large draw.

Brent crude futures rose $1.59, or 1.5%, to $110.38 a barrel in early trade, while US West Texas Intermediate (WTI) crude gained $1.36, or 1.4%, to $99.18. The recovery came after Brent touched $111.99 on Tuesday, its highest level in five months, before dropping sharply as reports of possible progress towards a US-Iran compromise triggered selling.

The diplomatic optimism proved short-lived. Iran has maintained that talks with Washington cannot begin until its demands are met, while risks to shipping in and around the Strait of Hormuz continue to rise. At least 18 vessels have been attacked over the past two weeks, while US crude stocks fell another 4.9 million barrels in the week ended October 16, according to American Petroleum Institute data.

Anindya Banerjee, Head of Research – Currency, Commodities and Interest Rates at Kotak Neo, said Tuesday's move showed how quickly oil can react when a diplomatic headline hits a market carrying a large speculative long position.

Brent's fall followed a report that Washington and Tehran had given preliminary approval to a Qatar-Pakistan compromise. Banerjee said the report was later called wrong by a diplomat involved in the talks, prompting the market to reassess whether anything had actually changed on the ground.

Why Are Oil Prices Rising Today?

The physical oil market remains tight despite attempts to find a diplomatic solution.

Banerjee said only four ships crossed the Strait of Hormuz on Saturday compared with around 85 a day before the war. At least 18 vessels have been attacked in the past two weeks, while Iran's conditions for reopening the route have not changed.

Shipping risks are also spreading beyond the Strait of Hormuz. Analysts have warned that attacks are reaching into the Gulf of Oman, putting crude loadings and ship-to-ship transfers in the region at risk.

The pressure is not limited to shipping. The Houthis have claimed attacks on Saudi energy infrastructure, including a Saudi Aramco site in Yanbu and the Shaybah oilfield, adding another source of uncertainty for supplies from the region.

US inventory data have provided another trigger for crude. American Petroleum Institute data showed US crude stocks fell by 4.9 million barrels in the week ended October 16. That was a much larger draw than the roughly 800,000-barrel decline analysts had expected ahead of the data.

Diesel supplies also remain tight. Banerjee said diesel continues to command a premium of around $90-$100 a barrel over crude, showing that stress in the physical fuel market has not eased even as governments and refiners try to increase supplies.

The US Energy Department is working with refiners around the world to boost fuel production as the shortage keeps diesel prices high.

Oil Price Outlook: Brent $120 And MCX ₹10,000 In Focus

Despite Tuesday's sharp reversal, Banerjee said the broader trend in Brent remains upward as long as crude holds above the $100-$102 zone.

Immediate support is seen around $106-$107, with momentum remaining positive above $106. On the upside, he sees $120 as the next major resistance for Brent.

The outlook remains positive for domestic crude prices as well. Banerjee sees ₹8,900-₹9,000 as a major support zone for MCX crude, with ₹10,000 as the key target if the uptrend continues. Beyond that, ₹10,500 would be the next level to watch.

Oil, however, could remain highly sensitive to developments around Iran and the US. Tuesday's move from a five-month high of $111.99 to a lower close showed how quickly prices can reverse when reports of a possible diplomatic breakthrough emerge.

For now, Brent's return above $110 suggests the market is again focusing on what is happening to actual supplies. With tanker attacks continuing, Hormuz traffic disrupted and US inventories falling, any fresh development around shipping or US-Iran talks could drive the next sharp move in crude.

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