The Story Wall Street Is Telling About $100 Oil and the Fed
The story: the Iran war keeps US crude near $103 and pushes the Fed toward a December hike. A 20.4% jump in energy prices and soaring refining profits back it; falling bond yields don't.
Wall Street’s story about oil goes like this: while the Iran war lasts, crude stays above $100 a barrel, inflation stays high, and the Federal Reserve raises interest rates again in December. Fed Chair Kevin Warsh gave it a push on Wednesday, when he said energy and related prices “have moved higher again in recent weeks” after a meeting at which two officials voted for a hike.
On Friday, Exxon Mobil (XOM) and Chevron (CVX) showed who is collecting. Chevron’s refining profit more than quadrupled from a year earlier, both stocks closed at records, and US crude ended the week at about $103 a barrel.
The stakes: Marathon Petroleum (MPC), a refiner, has nearly tripled in value this year, by our count, while United Airlines (UAL), a big buyer of jet fuel, is down 6.8%.
The story in one sentence
“Inflation expectations reversed course again in 2026 as the Iran conflict lengthened and energy prices continued to soar.” Joanne Hsu, director of the University of Michigan’s consumer surveys, in a report on 23 October.
The chain starts in the Gulf. The US and Israel attacked Iran on 28 February, and Iran blockaded the Strait of Hormuz, which carried about a fifth of the world’s oil before the war, while the US blockaded Iran’s ports. If fuel stays expensive, consumers expect more inflation, the Fed raises rates so that the expectation doesn’t stick, and the companies that pump and refine oil keep earning windfall profits while the ones that burn it pay.
The evidence for it
1. Energy prices are rising five times as fast as prices overall
Consumer prices rose 3.7% in the year to September, the Labor Department reported on 14 October, while energy prices rose 20.4%.
Strip out food and energy and prices rose a milder 2.6%. Gasoline, fuel oil and even airline fares are rising far faster than that.
2. Consumers expect more inflation, and they blame fuel
US gasoline averaged about $2.93 a gallon in the months before the war and was nearing $4.50 again in September, according to AAA figures cited by the University of Michigan.
Michigan’s survey found that consumers’ long-run inflation expectations ticked up in September and October. Most consumers expect gas prices to keep rising, which Hsu read as doubt about “a quick resolution to energy supply constraints.”
3. Refining is where the money is
The wars in Iran and Ukraine have squeezed fuel as well as crude. Attacks on refineries in Russia and the Middle East have cut global refining capacity, CNBC reported, and US diesel averaged $6.32 a gallon on Friday, more than 70% above a year earlier, according to AAA data cited by CNBC and the Associated Press.
That shows up in the results. Chevron’s refining profit more than quadrupled to $4.9 billion in the third quarter (our story), and Exxon’s refining arm earned $7.2 billion, a little more than its oil and gas production, the companies’ releases show.
Stocks have followed the money. Since the last close before the war, Marathon Petroleum has more than doubled and Valero (VLO) has nearly doubled, while Exxon is up 22.8%, by our count.
4. The Fed is leaning toward another hike
The Fed held its key rate at 3.75% to 4.00% on Wednesday, but Governor Lisa Cook and Cleveland Fed President Beth Hammack voted to raise it (our story). Futures put the odds of a quarter-point hike on 9 December at about 85% after the meeting, according to Bloomberg data cited by Yahoo Finance.
Seema Shah of Principal Asset Management expects a hike in December and another in early 2027, and said the two dissents “underline that tightening bias,” CNBC reported.
Gold, which pays no interest, has paid the price. Gold futures fell 3.6% on Friday, by our data, to their lowest in a year, as traders bet on tighter Fed policy, The Wall Street Journal and Investopedia reported.
5. A new round of strikes may follow Tuesday’s vote
The Wall Street Journal reported this week that the US has told Gulf allies to prepare for a possible short, intense campaign against Iran after the 3 November midterm elections. The New York Times reported similar plans on 21 October.
Iran has threatened to answer new strikes by hitting economic targets across the region, from commercial ships to energy sites, The Times of Israel and investingLive reported. Brent crude, the global benchmark, already settled at $116.72 on 23 October, its highest since 29 April, after more Houthi attacks on Saudi Arabia (our market wrap).
| Signal | Latest | Compared with | Source and date |
|---|---|---|---|
| Brent crude settlement | $116.72 (23 October) | Highest since 29 April | CNBC, The National, 23 October |
| US gasoline, a gallon | Near $4.50 (September) | About $2.93 before the war | AAA via University of Michigan, 9 October |
| CPI energy index, 12 months | +20.4% (September) | All items +3.7%, core +2.6% | Bureau of Labor Statistics, 14 October |
| Shell’s refining margin | $42 a barrel (Q3) | $11.60 a year earlier | Shell via Reuters and CNBC, 29 October (our story) |
| Odds of a Fed hike on 9 December | About 85% (28 October) | 78% before the meeting | Bloomberg via Yahoo Finance; CME FedWatch via Fortune |
| 10-year Treasury yield | 4.93% (30 October) | 5.29% (30 September) | Mostly Markets data; US Treasury |
The case against it
The doubters include oil analysts who see crude still moving, the bond market, and at times the Fed’s own chair.
- Oil is still getting out. MUFG’s Edward Bell and Soojin Kim said flows through Hormuz “are still holding at close to pre-conflict levels,” The National reported on 23 October, and Raphael Portela of the consultancy Wood Mackenzie told CNBC that crude is still “getting out of the Gulf,” if “at a steep freight premium.” President Donald Trump said on 23 October that the US “could end it very quickly.”
- Bond investors aren’t pricing an inflation spiral. The 10-year Treasury yield fell to 4.93% on Friday from 5.29% at the end of September, and Reuters called it the biggest monthly decline in yields since 2023. Part of that was a flight to safety during the tech selloff, Reuters and The Wall Street Journal reported, but lasting inflation fears would usually push long-term yields up, not down.
- Inflation outside energy is tame, and the chair sounds patient. Core prices rose 2.6% in the year to September, and Warsh said on Wednesday that the Fed’s “monetary medicine is starting to work.” Employers added just 29,000 jobs in September, the Labor Department said.
We think the third point is the strongest. An oil shock that hasn’t spread into other prices is the kind central banks usually wait out, and a weak job market makes waiting easier.
What would change minds
- Tuesday 3 November, and after. Trump has said he won’t strike Iran before the midterms. Renewed strikes, and Iranian attacks on ships or energy sites in reply, would strengthen the story; a Hormuz settlement would weaken it fastest, and Portela told CNBC one “would hit margins quickly.”
- Tuesday 10 November, 8:30 a.m. ET. The Labor Department publishes October’s consumer prices. Another big rise in the energy index, or core inflation moving well above 2.6%, would back the hawks.
- Wednesday 9 December. The Fed decides at the end of its 8–9 December meeting. The October jobs report, on Friday 6 November at 8:30 a.m. ET, is the main test before it: another weak month would make a hike harder to justify.
The stocks exposed
| Company | How it’s exposed | Stock this year |
|---|---|---|
| Most exposed if the story holds: sellers of oil and fuel | ||
| Marathon Petroleum (MPC) | Refiner; reports Tuesday 3 November | +173.5% |
| Valero (VLO) | Refiner | +145.5% |
| ConocoPhillips (COP) | Pumps oil and gas but doesn’t refine; reports Thursday 5 November | +64.5% |
| Occidental Petroleum (OXY) | Oil and gas producer | +55.6% |
| Exxon Mobil | Refining earned a little more than production in Q3 | +55.6% |
| Chevron | Refining profit more than quadrupled in Q3 | +54.5% |
| Most exposed if it breaks: buyers of fuel | ||
| United Airlines | Buys jet fuel; its 52-week low came on 30 March, a month into the war | −6.8% |
| Southwest Airlines (LUV) | Buys jet fuel; down 13.9% since the war began | +2.7% |
| Delta Air Lines (DAL) | Buys jet fuel, yet up 22.0% since the war began | +15.5% |
Our read
Partly supported. The first link in the chain is solid: US energy prices are up 20.4% in a year, and the refiners’ results show a real shortage of fuel, not just nervous traders. The weakest link is the step from oil to a December hike, with core inflation at 2.6% and long-term bond yields falling. We’ll watch the energy index in October’s consumer prices on 10 November, and before that, what the US does about Iran after Tuesday’s vote.
Story log
Everything we've published on this story, newest first. This page grows as the story moves.
Follow Exxon Mobil
Its stories collect under My stocks on the front page. For the daily email, subscribe to the newsletter.
Mostly Markets is for information and education only and isn't investment advice. Nora Whitfield is a pen name. Prices are from Nasdaq and CNBC as of the time stated.
