Oil slips after Saudi strike jump as AI selloff, Fed decision compound market risk

Benchmark US crude futures fell around $1 on Thursday, paring some of the previous day’s gains, as traders weighed the risk that escalating Middle East conflict could further disrupt regional energy supplies.

US West Texas Intermediate (WTI) crude futures were down 92 cents, or 0.9%, at $101.86, after dropping as low as $101.75 a barrel, according to Reuters. They had risen 3% on Wednesday.

The pullback followed a volatile stretch driven by attacks on Saudi Arabia’s energy infrastructure. On Tuesday, Yemen’s Iran-aligned Houthis said they hit Saudi Arabia’s biggest oil refinery with a missile, stepping up strikes against the world’s second-largest crude producer after the US. Saudi authorities did not immediately confirm the strike on the 550,000-barrel-per-day facility.

On Wednesday, the Houthis attacked Aden airport, government forces said, after the group warned people to evacuate it as fighting surged in the impoverished country ensnared in the Middle East conflict.

Brent crude, the international standard, had climbed 2.7% to $112.39 a barrel on Oct. 28, according to Transport Topics. Zero Hedge reported Brent rose as much as 3.3% to $112.43 and WTI briefly topped $100 after two attacks on an Aramco oil field and an airport in Saudi Arabia’s Eastern Province killed at least three people, with Aramco telling staff to evacuate its Dhahran headquarters.

**Diplomacy vs. strike risk**

Qatari mediators have presented Iran with a new draft deal to end the war with the US and Israel, an official briefed on the negotiations said, but a senior Iranian official described them only as unacceptable ideas that did not amount to an offer, Reuters reported.

That diplomatic backdrop is colliding with renewed strike risks. Zero Hedge reported, citing an NYT report, that the US and Israel have drawn up plans for renewed strikes on Iran after the midterms, while the IRGC Navy warned US bases could be targeted if Washington keeps "encouraging" ships through the Strait of Hormuz.

**US inventories draw again**

US crude and distillate inventories fell due to higher demand, while gasoline stockpiles rose last week, the Energy Information Administration said on Wednesday.

Crude inventories fell by 1.9 million barrels to 410.6 million barrels in the week ended Oct. 23, the EIA said, compared with analysts’ expectations in a Reuters poll for a 15,000-barrel rise. Commercial stockpiles are now 4% below the five-year average for this time of year, according to Oilprice.com.

Crude stocks at the Cushing, Oklahoma, delivery hub fell by 624,000 barrels, the EIA said, while inventories on the Gulf Coast fell last week to their lowest level since December 2024.

Distillate stockpiles, which include diesel and heating oil, fell by 1.5 million barrels in the week to 102.8 million barrels, versus expectations for a 0.9 million-barrel drop, the EIA data showed. Distillate inventories are now 10% below the five-year average, according to Oilprice.com.

US gasoline stocks rose by 3.9 million barrels in the week to 209.2 million barrels, the EIA said, compared with analysts’ expectations for a 0.9 million-barrel draw. Stockpiles in the Midwest are now at record lows.

Net US crude imports fell last week by 796,000 barrels per day, the EIA said, while exports rose by 1.4 million bpd to 4.85 million bpd.

"Energy stockpiles fell more than expected as exports took supplies away from the US. The falling distillate inventories imply diesel inventories remain well below seasonal norms, giving little hope for price relief in the near term. SPR draws have also slowed dramatically, which suggests we’re running out of cushion," said David Russell, Global Head of Market Strategy at TradeStation.

Analysts for ship tracking firm Kpler warned that export figures reported by the EIA were higher than their own tracking systems. "EIA appears to have significantly overestimated crude exports; observed loadings were about 1 million bpd lower than EIA reported, bringing other elements of the balance into question," said Kpler’s lead oil analyst, Matt Smith.

**AI selloff returns**

The oil spike is compounding pressure on equities, where the AI trade is running out of patience on capital spending, according to Zero Hedge.

US futures slid Thursday as the market slammed both Meta and Tesla over their capex disclosures. Tesla dropped 4.4% in premarket trading after cutting its 2026 capex target to about $20 billion from more than $25 billion, while Meta reversed an after-hours gain to trade down about 1.5% as investors focused on its hedged 2027 spending commentary.

Lam Research tumbled 8% on a soft forecast, dragging chipmakers including AMD, Broadcom and Intel lower. As of 8:00 a.m. ET, S&P futures were 1.0% lower at 7,720.75, Nasdaq futures were down 1.7% at 29,507.50, and Dow futures were 0.6% lower.

The flight to quality was back on, with 10-year Treasury yields sliding 9 basis points to 5.03% even as oil jumped, Zero Hedge reported.

**Fed in focus**

The Fed meets Oct. 28 with markets anticipating no change to the benchmark US interest rate, according to Transport Topics. The Fed is in a bind, however, with higher energy prices from the Middle East conflict intensifying inflation.

The Fed raised its main interest rate last month for the first time in three years in hopes of slowing high inflation. The widespread expectation on Wall Street is that the Fed will leave the federal funds rate alone at this meeting, with the question being whether it will give hints about future moves.

Fed Chairman Kevin Warsh has been adamant since taking over the Fed about wanting it to give fewer indications about its future moves, Transport Topics reported.

The yield on the 10-year Treasury remained at 4.99% late Oct. 27, near the high end of its range since it started shooting upward from 3.97% before the war with Iran sent oil prices and worries about inflation much higher. It has pulled back after topping 5.30% earlier this month and touching its highest level since 2002.

In stock markets abroad, South Korea’s Kospi led the way with a jump of 6.6% following SK Hynix’s leap after its profit report, with the memory chip seller expecting demand to outpace supply through 2030. Japan’s Nikkei 225 rose 1.1%, and France’s CAC 40 added 0.2%.