Oil prices staged another sharp rally on Thursday afternoon following the domestic market close, with Brent crude coming within striking distance of the $95 mark. The persistent standoff between the US and Iran has prompted capital to continue pricing in supply concerns. Since the second blockade of the Strait of Hormuz, crude inventories have continued to draw down. According to Kpler data, global oil inventories have been declining rapidly, further compressing the buffer space. The tightening of crude supply is a near-certainty, and the longer the strait remains blocked, the stronger the upward pressure on prices. Add to that the widespread tightness in refined products globally, with crack spreads in both the US and Europe hitting record highs, and the anxiety stemming from supply shortages becomes increasingly pronounced, making it easier for oil prices to climb higher.
Judging from the statements of US government officials at various levels, economic pressure on Iran is currently the primary measure being employed. Trump has announced the launch of the most aggressive destructive economic sanctions against Iran in history, calling it the economic equivalent of "D-Day" and unveiling a sweeping economic restriction plan that aims to cut off Iran's external financial and commercial ties, covering banking, corporate operations, ship registration, capital flows, and smuggling networks. Iran is now caught in a pincer movement of surging domestic inflation and a sharp drop in fiscal revenue caused by the blockade, placing immense strain on both the government and households.
In response to external pressure, Ebrahim Azizi, head of the Iranian Parliament's National Security and Foreign Policy Commission, stated that any miscalculation or erroneous action by the US could bring severe consequences. Iran has also signaled that if its interests are harmed, it will retaliate against hostile nations and governments through measures such as raising tariffs or seizing assets in the Strait of Hormuz. The mutual escalation between Washington and Tehran is fueling market fears of escalating geopolitical risk, which could further destabilize the already fragile oil supply-demand balance. The strength in crude prices is driven by tight supply fundamentals, but even more so by geopolitical anxieties. Brent has once again reached the $95 level, entering a key resistance zone. With the weekend approaching, both oil prices and the parties involved in the geopolitical standoff face a crucial decision window - whether tensions ease and prices pull back, or the situation escalates further and triggers another sharp rally. The answer is imminent, and risk management should remain a top priority for participants.
Daily market snapshot: [1] WTI crude futures settled up $2.44, or 2.89%, at $86.83 per barrel; Brent crude futures settled up $2.16, or 2.36%, at $93.78 per barrel; INE crude futures rose 1.11% to 591.4 yuan. [2] The US dollar index edged up 0.07% to 98.87; the USD/CNH exchange rate at HKEX fell 0.21% to 6.7132; the US 10-year Treasury yield fell 0.34% to 108.45; the Dow Jones Industrial Average declined 1.32% to 52,759.21.
Key headlines: [1] The energy crisis is far from over: the Iran conflict has severely disrupted the global refining system, and fuel prices could remain elevated for years. The war has pushed the global refining industry to the brink of collapse, with diesel and gasoline prices potentially staying high for several years. Brent crude has retreated from its wartime peak of $118 to around $90, but European diesel prices have surged over 70% and US gasoline has climbed about 60%, reflecting a severe imbalance in refined product supply. Data from the International Energy Agency shows that more than 20% of the Middle East's refining capacity has been shut down, and the closure of the Strait of Hormuz is suppressing fuel exports. Ukrainian attacks have reduced Russian refining capacity by nearly 30% to below 4 million barrels per day, forcing Russia to ban diesel exports. US diesel profit margins hit a record $100 per barrel this week. Pre-war inventory buffers have largely disappeared. Global oil inventories fell at a rate of 3.5 million barrels per day from March to July, with US diesel inventories at their lowest for the period in 30 years and gasoline stocks at their lowest since 2012. In the second quarter, global refinery throughput fell by 5.1 million barrels per day year-on-year, leaving a market demand gap of over 1 million barrels per day. Even if the strait reopens, the more than 20 damaged refineries in the Gulf region will require extensive repairs, meaning supply tightness cannot be quickly resolved. Global fuel inventories urgently need replenishment, which will continue to support refining operations and increase the likelihood of energy-driven inflation this winter and beyond. Nearly six months into the conflict, the inventory safety cushion has been eroded, and war-related disruptions have added to the burden on the refining system. For the global economy, the truly significant energy crisis may have only just begun. US gasoline prices have recently climbed to fresh record highs, with prices at the pump reaching a new peak of $5.47 per gallon. Latest data shows that the spread between US diesel and crude prices has also broken through $102.20 for the first time, an all-time record. The rise in diesel prices began after the conflict with Iran and has persisted to this day. Last year, the average price of diesel in the US was $3.69 per gallon, and it has now risen by 49%. Eight major US agricultural and industrial core regions are highly dependent on transportation, and this sharp increase in oil prices has directly pushed up operating costs for truckers and farmers, further aggravating already elevated inflationary pressures.
[2] According to CNBC, Iran's inflation rate has soared to 89%, with food prices up 164%. Mehrdad Sepahvand, a former economic adviser to the Central Bank of Iran, said that ordinary Iranians, especially low-income households and young people, are under tremendous pressure due to soaring inflation, unemployment, and limited job opportunities. Trump has announced the most severe destructive economic sanctions against Iran in history, calling it the economic equivalent of "D-Day." The US stated that Iran's navy, air force, and military facilities have been struck, the local currency has depreciated, and the domestic economy is on the verge of collapse. Washington has also issued a global warning that any country providing support to Iran through currency swaps, wire transfers, ship registration, shell companies, or other channels will face severe economic retaliation, demanding that all activities supporting Iran cease immediately.
[Iranian official: any "erroneous action" by the US could bring severe consequences] On the 20th local time, according to Iranian sources, Ebrahim Azizi, head of the Iranian Parliament's National Security and Foreign Policy Commission, said that any miscalculation or erroneous action by the US could bring severe consequences. Azizi also urged the US to end its military presence in the region, stating that Washington should accept the changing regional security landscape.
[3] On August 19 local time, a US official revealed that the US military has quietly established a shipping lane in and out of the Strait of Hormuz, ensuring that "millions of barrels" of oil can be moved through the strait daily. The official said the operation has been ongoing for several weeks, with 15 to 20 tankers per day using a southern route off the coast of Oman to transit the strait over the past two weeks. Daily oil volumes have continued to grow. The official noted that oil shipments through the Strait of Hormuz are now approaching 10 million barrels per day, with some nights seeing total Gulf oil shipments reaching 15 to 20 million barrels. The official acknowledged that current volumes are still below pre-war levels but have already had a noticeable impact on global supply. The command chain for the operation has come to light. The official said the shipping lane is under the command of the Army's 82nd Airborne Division headquarters at Fort Bragg, North Carolina. The operation not only escorts laden tankers but also assists empty tankers transiting the strait from the Arabian Sea into the Persian Gulf to load oil in the UAE, Bahrain, and Kuwait before departing. Under the plan, the vessels form a large convoy exiting during a specific window each night and another convoy entering during another window, passing through multiple checkpoints along the way. US fighter jets are deployed to patrol overhead, searching for and shooting down Iranian cruise missiles and drones. Pressure on Iran has been simultaneously escalated. The official revealed that a recent military operation by US Central Command has degraded Iran's radar and maritime surveillance systems, significantly reducing Iran's ability to monitor vessel traffic in the southern shipping lane of the strait, and many Iranian attacks on ships have been intercepted by US forces. This development stands in stark contrast to Trump's announcement yesterday of "unprecedented" economic isolation of Iran alongside the Hormuz blockade: while the US is blockading Iranian ports and preventing goods from entering or leaving, it is simultaneously carving out an escorted shipping corridor for other Gulf producers. A covert battle over the energy artery is shifting from open confrontation to behind-the-scenes maneuvering.
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