Trading kicked off with a surge on Monday as fresh US-Iranian military clashes following a month-long lull injected anxiety into the market, propelling oil prices up 2% at the open and finishing the session higher after an intraday tug-of-war, with gains peaking above 3%.
While geopolitical factors once again drove risk sentiment, the day's volatile trading indicated that capital remained cautious in its assessment, with no signs of panic in the international crude market. In contrast, China's energy and chemical sector reacted with far greater emotional intensity, with multiple products gaining over 5% and several chemical commodities hitting their daily limit up.
Survey data indicates that Saudi Arabia, caught between conflicting pressures, may significantly raise its official selling price (OSP) for Arab Light crude destined for Asia in October. Reports have increasingly surfaced regarding clandestine ship-to-ship (STS) crude deliveries by Gulf nations, with multiple institutions tracking a notable rise in oil flows through the Strait of Hormuz, now estimated at 7 to 8 million barrels per day, up sharply from around 4 million in mid-July and recovering to roughly three-quarters of pre-conflict levels. However, overall Middle East oil exports remain clearly below pre-war levels, while tight refined product supplies in the US and Europe, coupled with a rapid rebound in Asian demand since August, continue to underpin the crude market.
After August's rangebound trading, the oil price structure appears to be nearing its endpoint, with notable overhead resistance and the battle at key levels entering a critical phase. China's SC crude has already broken through to new highs for the second half of the year, leading the way in clearing resistance. A combination of recovering demand, constrained supply, and continuously rising tanker freight rates, alongside the historically strong seasonal performance of SC crude in August and September, suggests this robust momentum is expected to persist for some time. Risk management remains essential, urging cautious participation.
Daily Market Snapshot:
WTI crude futures settled up $2.36, or 2.83%, at $85.76 per barrel. Brent crude futures gained $2.39, or 2.71%, closing at $90.49 per barrel. INE crude futures rose 3.06% to 637.2 yuan. The US dollar index slipped 0.27% to 99.42. The Hong Kong Stock Exchange USD/CNH rate held steady at 6.7148. The ten-year US Treasury note fell 0.15% to 107.73. The Dow Jones Industrial Average declined 0.7% to 53,185.9.
Key Developments:
US-Iranian military friction has reignited, heating up regional tensions. Over the weekend, US forces conducted a precision strike on rocket launchers on Iran's Larak Island in the Strait of Hormuz, marking the first US military action against Iran in a month since the large-scale air assault on July 29, shattering weeks of battlefield silence. US Central Command clarified that the operation was a preventive, defensive strike, stating that intelligence indicated Iran's Revolutionary Guard was preparing to lay rockets and mines along the strait's international shipping lanes, just after US forces completed mine-clearing operations in the main channel last week. The strike aimed to protect global commercial shipping and uphold international trade order, not as active military provocation.
The strike triggered strong retaliation from Iran, with officials confirming the launch of ballistic missiles at US bases in Jordan. Jordanian military forces monitored and successfully intercepted eight incoming missiles, with no casualties or damage reported. Iran views the Strait of Hormuz as an inviolable strategic red line and is finalizing a joint management plan with Oman. Tehran insists it will not fully reopen the strait until the US completely ends the war, lifts blockades and sanctions, and pays war reparations, reserving the right to strike vessels passing without permission. Meanwhile, Washington has abandoned short-term military victory strategies, pivoting fully toward a dual approach of extreme economic sanctions supplemented by military deterrence.
Spot market strength is expected to drive a significant hike in Saudi Arabia's October OSP for Asian buyers. A survey of five refinery sources suggests Saudi Arabia may raise the October OSP for Arab Light crude to parity with or a premium of up to $4 per barrel over the Oman/Dubai benchmark. This implies a $2 to $6 per barrel increase from September's OSP, which stood at its lowest discount in six years. The anticipated hike is driven by a substantially firmer Middle East spot crude market. On August 21, Dubai crude spot premiums over swaps surged to $13.58 per barrel, the highest since late May, with August's average premium around $9.71 per barrel, far exceeding July's $1.26. Oman crude spot differentials showed similar strength.
US-Venezuela oil ties are taking an unprecedented turn as Washington steps into the role of investor. President Trump spent months touting that his actions to topple Venezuela's leader had put that country's oil "in America's grasp," but when US energy companies hesitated to invest at the speed and scale he desired, his administration devised an extraordinary solution: the US government itself would become an investor. The oil deal announced Friday evening shifts Washington's role from "middleman" in US oil investments within Venezuela to direct "investor." The agreement grants Washington a direct financial stake in a private company, led by controversial Venezuelan businessman Alejandro Betancourt, which will be awarded development rights to 17 oil fields reportedly containing 65 billion barrels, roughly one-fifth of the nation's reserves, for a century-long term. Under the terms, the US plans to take a 35% passive equity stake in Betancourt's "North American Blue Energy Partners" and secure priority rights to purchase 20% of its production at cost. Trump announced Sunday that oil obtained through the recent Venezuela deal will replenish the US Strategic Petroleum Reserve (SPR), which stands at approximately 290 million barrels, near 44-year lows after extensive drawdowns during supply disruptions and high prices. Trump said on social media that refilling would begin promptly, calling Venezuelan oil "a gift from Venezuela to the American people." It remains unclear whether the agreement can quickly supply crude to the SPR or benefit US drivers in the short term. The deal, announced Friday, aims to revitalize Venezuela's oil industry, but significant investment and infrastructure building are needed before output can rise substantially. Venezuela's interim president, Delcy Rodríguez, in a nationally televised address, detailed the US oil pact, which spans 25 years covering 17 prospective oil fields, targeting production of 1.5 million barrels per day. Venezuelan authorities aim to profit by setting a price of $69 per barrel, ensuring a $19 per barrel government take, plus a 16% royalty and a 34% income tax on oil companies operating the fields. These gains are expected to add to the $209 billion windfall announced earlier this week. Iranian media Fars News mocked the Trump-Venezuela oil deal as bluster, noting that output would be less than half of Iran's current daily production and just 8% of oil exports under normal Hormuz transit conditions, with the 100-year contract yielding only 63 billion barrels of heavy crude.
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