Oil prices experienced significant volatility on Monday, as shifting geopolitical developments caused investors to reassess the market's outlook.
Stimulated by heightened tensions over the weekend, prices surged at the opening, with Brent crude briefly pushing above $90.
This rapid ascent to such a level indicates that supply-side concerns are beginning to trigger market anxiety.
However, prices later retreated sharply by more than 5% in the afternoon on reports of mediators working to broker a temporary ceasefire between the US and Iran to facilitate a revival of their interim agreement.
The subsequent announcement by Houthi forces of a maritime navigation ban against Saudi Arabia, effective Monday, then spurred a rapid rebound from the day's lows, with prices ultimately closing higher.
This move brings to reality previous market fears of a blockade at the Bab el-Mandeb Strait.
This strait connects the Red Sea to the Gulf of Aden and is a crucial chokepoint linking the Atlantic Ocean, Mediterranean Sea, and Indian Ocean, handling approximately 12% to 15% of global maritime trade.
With shipping through the Strait of Hormuz already disrupted by US-Iran conflict, the Bab el-Mandeb Strait has become a vital alternative route for Saudi crude exports, accounting for roughly 10% of global seaborne oil trade.
The geopolitical landscape is becoming increasingly complex.
Investors require time to discern the direction of these unfolding events.
Oil prices have rebounded to the lower boundary of the range seen during the peak of the conflict earlier this year, a level of significant importance for both bullish and bearish market participants.
A decisive break above this level would signal that geopolitical risks are once again veering towards being uncontrollable, while a rejection would suggest the market assesses the current round of US-Iran military clashes as insufficient to overturn medium-to-long-term expectations of a supply surplus.
Monday's wild price swings demonstrate a lack of consensus on the current stage of conflict and negotiation, with clear uncertainty surrounding geopolitical developments.
Mutual strikes between the US and Iran continue, and the activation of the Bab el-Mandeb card indicates an escalation of regional risks.
However, reports of a potential temporary ceasefire also fuel market concerns that tensions could de-escalate at any moment, which would erode the geopolitical risk premium.
Although this has not yet materialized, the mere existence of such doubts significantly disrupts the momentum of oil's rally.
The geopolitical situation requires waiting for a clearer final outcome.
Following this intense volatility, prices retain the potential for short-term spikes if risks escalate further.
However, the sharp swings at elevated levels reflect pronounced market divergence.
After a $20 rally, the likelihood of a sudden price reversal is increasing.
The risk-reward profile for chasing the rally is no longer particularly attractive.
The primary task at this stage is to manage risk effectively, then cautiously select opportunities with careful attention to timing.
Market Snapshot
WTI crude futures for the front month settled $0.70 higher, up 0.86%, at $82.48 per barrel.
Brent crude futures for the front month settled $1.12 higher, up 1.27%, at $89.22 per barrel.
INE crude futures closed down 0.43% at 535.3 yuan.
The US Dollar Index gained 0.2% to 100.97.
The USD/CNH exchange rate on the Hong Kong Exchange fell 0.17% to 6.7424.
The US 10-year Treasury note price declined 0.27% to 108.92.
The Dow Jones Industrial Average fell 0.59% to 51,839.26.
Key Developments
Saudi-Led Coalition Announces Military Action to Secure Bab el-Mandeb Shipping
On July 20, the command of the Saudi Arabia-led coalition issued a statement announcing it had begun taking measures to protect coalition vessels transiting the Bab el-Mandeb Strait.
Coalition spokesperson Turki al-Maliki stated the command is taking all necessary military actions and stringent measures to ensure the safe passage of coalition ships.
The coalition's statement emphasized that the actions comply with international law and the 1982 United Nations Convention on the Law of the Sea, vowing a firm response to any threats by the Houthis against commercial shipping, which it deemed a clear violation of international law and an act of maritime illegality.
This military action is a direct response to the Houthi announcement the same day of a maritime blockade against Saudi Arabia.
Houthi spokesperson Yahya Saree announced the shipping ban, citing an "eye for an eye" principle in response to what he called Saudi Arabia's 12-year land, sea, and air blockade of Yemen.
The Houthis had previously accused Saudi Arabia of airstrikes on airports under their control and retaliated by launching missiles and drones into Saudi territory.
Analysts warn that obstruction of the Bab el-Mandeb Strait would further intensify pressure on global energy supplies.
UK Prime Minister Burnham Reportedly Set to Open North Sea Oil Drilling, US President Trump Welcomes Move
Reports from the UK suggest Prime Minister Andy Burnham is considering approving new fossil fuel extraction projects at the Rosebank and Jackdaw fields in the North Sea, though Burnham himself has not yet confirmed this.
US President Donald Trump reacted positively, stating based on reports that Burnham might support a new round of oil and gas drilling in the North Sea, claiming the people of Aberdeen, Scotland, would "take to the streets to celebrate."
On Sunday, Trump posted on his social media platform Truth Social, directly stating Burnham had clearly indicated a willingness to open up such drilling.
In the post, Trump wrote, "The people of Aberdeen, Scotland are going to be dancing in the streets because new Prime Minister Andy Burnham has announced they are going to fully develop the priceless North Sea Oil!"
As a long-time public supporter of fossil fuels, Trump added that expanding North Sea extraction could transform the UK from "a disaster country mired in poverty into one of the wealthiest countries in the world."
He again criticized the wind power industry, suggesting the UK should remove the "ugly windmills" that he said spoil the view over Aberdeen.
Gulf Crude Exports Rise Then Face Headwinds: Rebound in First Half of July, But Strait of Hormuz Traffic Plummets
Shipping data indicates that crude and condensate exports from Saudi Arabia, the UAE, Iraq, Kuwait, and Iran rebounded significantly in the first half of July, averaging approximately 12 million barrels per day, an increase of about 16% compared to the daily average for all of June.
Another firm's estimate was higher, at 13.06 million barrels per day.
Saudi Arabia, Iran, and Iraq were the main contributors to this growth, while UAE exports moderated from record levels seen in June.
The primary backdrop for this export surge was a temporary US-Iran agreement reached in mid-June to reopen the Strait of Hormuz and seek an end to conflict, which eased supply concerns and initially pushed oil prices lower.
However, disagreements over management of the strait led to the collapse of the deal in early July, with hostilities resurging.
With the conflict reignited, oil tanker traffic through the Strait of Hormuz has noticeably slowed.
Shipping data shows only three product tankers transited on Thursday, the lowest single-day count since May.
Analysts note that the transport slowdown will force producers to cut output, subsequently reducing crude loadings.
Even with the rebound in the first half of July, exports remain about 32% below the pre-conflict peak of 17.6 million barrels per day in February.
Simultaneously, a new supply threat has emerged: sources indicate Iran has instructed Yemen's Houthi forces to immediately block Red Sea oil shipping routes if the US attacks its power facilities.
In response, Saudi Arabia has rerouted the majority of its energy exports to the Red Sea port of Yanbu.
Since July, 75% of its 5.29 million barrels per day of exports have been shipped from Yanbu.
Global energy supply risks continue to intensify.
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