As of October 30, front-month WTI crude oil futures settled at $104.12 per barrel, posting a monthly gain of 15.15%.
Front-month Brent crude oil futures settled at $117.64 per barrel, up 13.63% for the month, while INE crude oil futures settled at 729.2 yuan per barrel, recording a monthly increase of 4.81%.
Geopolitics remained the primary variable, driving oil prices to another monthly peak. Through late October, crude prices surged once more amid escalating U.S.-Iran tensions. On the geopolitical front, with U.S. midterm elections approaching, Washington has repeatedly signaled the possibility of renewed strikes on Iran after the elections; in response, Tehran intensified attacks on vessels transiting the strait in November. Taken together, the window for U.S.-Iran negotiations has not yet closed, but significant differences persist between the two sides on negotiation terms, particularly regarding uranium enrichment processing, and mutual trust remains lacking. Looking ahead to November, geopolitical factors are expected to remain the core driver of oil prices, which are likely to maintain a wide-range oscillation pattern.
Global buffer capacity has declined, and the resilience of Middle East crude exports faces renewed challenges. Although supported by the southern Oman route and U.S. military escorts, Middle East crude exports (including transshipment ports) surged to 18.756 million barrels per day in September, approaching pre-war highs, and still maintained shipments of 17.588 million barrels per day in October, the overall supply system remains highly fragile. Should U.S.-Iran hostilities escalate, the entire strait supply system could once again grind to a halt. Meanwhile, U.S. crude oil reserves (SPR) had fallen to 283 million barrels by the end of October; after the final batch of 40 million barrels is released, the space for further buffer releases to cushion supply shocks will be significantly constrained. Looking ahead to November, as the geopolitical situation evolves, the resilience of global crude oil supply will face renewed challenges.
Outlook: 1. Navigation conditions through the Strait of Hormuz and the Bab-el-Mandeb Strait; 2. Progress in U.S.-Iran negotiations; 3. Subsequent attacks by Houthi forces; 4. Global reserve release progress.
Market Review
As of October 31, international oil prices surged sharply once again during the month, driven by the ebb and flow of U.S.-Iran geopolitical tensions. This was primarily reflected in the fact that, against the backdrop of diminishing crude buffer measures, rising U.S.-Iran geopolitical tensions made the current Middle East "dark navigation plus transshipment" supply system highly vulnerable to pressure should the U.S. resume strikes. Throughout October, oil prices priced in not only the geopolitical premium from rising Middle East tensions but also market concerns about the resilience of the supply system. In terms of the monthly spread structure, overall monthly spreads strengthened, with Brent more pronounced; however, toward month-end, as CFD and CFD Roll weakened, combined with increased European crude arrivals and lackluster downstream demand, overall monthly spreads retreated from highs. It is expected that in November, U.S.-Iran geopolitics will remain unresolved: if the U.S. and Iran escalate strikes and Middle East crude exports are once again "paused," market concerns about supply continuity will drive monthly spreads into a sharp contango widening; if both sides negotiate and ultimately reach an agreement, monthly spreads will maintain weak oscillation. From the perspective of investor behavior, according to CFTC speculative net positioning, Brent fund net positions rebounded significantly in October. In terms of inter-regional price spreads, WTI strengthened notably relative to Brent in early October, mainly reflecting: 1. Hurricane impacts, with production and inventories declining; 2. The lifting of sanctions on the Russian tanker fleet having a more pronounced bearish effect on Brent; 3. Short WTI/long Brent arbitrage positions gradually taking profit and closing out. However, as the month progressed, Brent became relatively stronger, mainly due to: 1. U.S. crude production recovering strongly after the hurricane; 2. Iran increasing the number of tankers bombed, freight rates rebounding slightly while market concerns about the supply system increased. Throughout October, although oil prices rebounded sharply due to geopolitical escalation, this highlighted a "strong paper, weak physical" (discount) pattern, which is also related to the increased crude supply flowing out of the Middle East through dark navigation plus transshipment during September-October. Short-term crude supply recovered somewhat, and combined with high downstream product prices eating into demand, gasoline and diesel cracking spreads have fallen significantly; particularly as the winter travel off-season set in, high gasoline prices severely dampened demand, with gasoline cracking spreads declining notably. That is, under the marginal changes of increasing supply and weakening demand, the physical market has been relatively weak.
Geopolitics Remains the Key Variable as Oil Prices Surge Again Monthly
Since October, Middle East geopolitical uncertainty has risen significantly. In early October, U.S. President Trump stated he would not attack Iran before the midterm elections, leading the market to believe that the U.S.-Iran negotiation window had not closed and that an agreement could still be reached before the midterms. However, entering November, the window for reaching an agreement has narrowed. During the same month, Saudi Arabia, Turkey, Pakistan, and other countries attempted to establish indirect negotiation channels for the U.S. and Iran, referencing the earlier "memorandum of understanding" model, achieving some results; at month-end, Iran's Supreme Leader called for conditions to end the war. Overall, however, U.S.-Iran negotiation progress remains very limited, with substantial differences persisting on uranium enrichment processing. Meanwhile, after the "memorandum of understanding" lapsed, mutual trust further deteriorated. Iran maintains that it will not reach an agreement with the U.S. until it can confirm that Washington can guarantee the agreement's long-term effectiveness. Therefore, we expect that if an agreement remains possible, the process will be longer than the previous "memorandum of understanding" stage. In terms of geopolitical path selection, the market still leans toward "continued conflict" rather than "resumed negotiations." Based on Polymarket predictions, the market believes the maximum probability point for successful U.S.-Iran negotiations has shifted to March 2027. During October, another geopolitical development was the conflict between Yemen's Houthi forces and Saudi Arabia. Houthi forces attacked Saudi Arabia's east-west pipeline and pump stations, the Ras Tanura refinery, and Riyadh's airport, among other critical energy and civilian infrastructure. Saudi Arabia maintained some military response but relatively limited, while the "Mecca Agreement" formulated by Saudi Arabia, Turkey, and Pakistan leans more toward defense than offense, and the U.S. also refused to expand the front against Houthi forces. On the Houthi side, apart from attacks on Saudi Arabia, the probability of negotiations with Saudi Arabia is low before their capture of Taiz, Yemen's third-largest city; meanwhile, Saudi Arabia and Yemen's Houthi forces will also need to wait for the Middle East geopolitical situation to become clearer in November. Amid Middle East uncertainty, overall "dual strait" shipment volumes have declined again. Using Vortexa data, Saudi Arabia and Middle East exports through the Strait of Hormuz fell significantly after Iran and Houthi forces intensified strikes. Current Middle East exports through the Strait of Hormuz, based on Vortexa's final week data, have fallen to 8.57 million barrels per day, down nearly 7.6 million barrels per day from October's peak, though this figure is expected to be revised upward with a lag. On a monthly basis, October exports declined by 1.12 million barrels per day month-on-month.
Global Buffer Capacity Declines as Middle East Export Resilience Faces Renewed Challenges
During October, the IEA report noted that "despite weakening demand, the oil market is expected to remain in a supply-demand deficit through year-end." As of end-October, global supply-demand expectations have undergone the following major changes: The EIA October report showed a significant reversal in the global 2026 supply-demand balance forecast — before the U.S.-Iran war broke out in February, the EIA projected a surplus of about 3.04 million barrels per day for 2026; the latest October report now forecasts a deficit of 1.3 million barrels per day, a swing of 4.34 million barrels per day. Major agencies expect that if the U.S.-Iran conflict eases before year-end, a surplus will still emerge in the first quarter of next year. However, the resilience of the current Middle East supply system is facing challenges, and market expectations for the timing of a Middle East ceasefire are not optimistic; if hostilities continue, major agencies may further downgrade supply-demand gap forecasts. Second, a major news item in October was that the U.S. Department of Energy is expected to release another 40 million barrels of crude reserves, and the G7 also announced in October that it would accelerate the release of 100 million barrels of oil, including 20 million barrels of diesel, to be released as quickly as possible within 4 months (planned). If we take early October as the starting point for the release, then over the 4-month period through end-January, 813,000 barrels of crude would be injected into the market daily. If we assume that excluding 20 million barrels of diesel, optimistically all the rest is crude plus condensate, then approximately 650,000 barrels per day of crude supply would be delivered to the market. According to the agreement, U.S. reserve releases are primarily loan-based, and subsequent bidders will still need to purchase crude at a premium to replenish reserves, which to some extent has altered the U.S. crude monthly spread structure. Looking at the U.S., SPR releases have been one of the main forces balancing the market. In total, since March, the U.S. has released approximately 132 million barrels of crude reserves. According to EIA data, as of end-October, U.S. crude reserve inventories had fallen to approximately 283 million barrels. How much more room remains for further U.S. crude reserve releases? We assess this based on the following three criteria: 1. Academic threshold — the U.S. crude reserve red line is approximately in the 250-300 million barrel range, mainly based on salt cavern storage characteristics: crude oil floats atop the brine layer at the bottom of salt caverns. When extracting crude, operators inject fresh water into the cavern bottom, using water pressure to push the upper crude layer out. When inventory levels are extremely low, the crude layer becomes very thin, leading to pumping difficulties and situations exceeding absolute physical limits; 2. Federally legislated operational minimum — the lower limit is 252.4 million barrels, which is the non-emergency operational floor set by U.S. federal law for the Strategic Petroleum Reserve (SPR). Touching this red line means the President would lose legal authorization for routine, small-scale reserve releases; 3. Physical limit (salt cavern storage capacity) — approximately 70 million barrels, which is the system's physical floor derived from combining the lowest points of all salt caverns, pipeline layout heights, and non-recoverable dead oil at the bottom. Therefore, we expect that the current additional 40 million barrel U.S. crude release is already the final batch of reserve releases, and subsequent release capacity will be "severely constrained." Beyond the U.S., major Middle East transshipment ports and transshipment near Fujairah also faced renewed tests in October. After Yemen's Houthi forces earlier blockaded the Bab-el-Mandeb Strait, relevant Saudi tankers chose to transport crude northward via Indian pipelines and the Suez Canal. Although this increased ton-mile costs, supply was maintained. However, in October, Yemen's Houthi forces attacked Saudi Arabia's east-west pipeline and the Ras Tanura port respectively, causing wide fluctuations in Saudi crude exports in October. Although the impact of this attack was smaller than the early September pipeline attack, it undoubtedly proved that the Middle East supply system is relatively fragile. As Iran intensified attacks on U.S.-escorted tankers on the southern route in October, transit volumes declined. As we have mentioned multiple times in previous reports, the current Middle East crude supply system is extremely fragile. Going forward, close attention must be paid to whether the U.S. and Iran will intensify attacks or de-escalate after the U.S. midterm elections. If attacks intensify, any Middle East transshipment method could once again be exposed to Iranian attack risks. If the U.S. chooses to de-escalate after the midterms, and the current system is maintained, then opportunities to sell on rallies after geopolitical events spike could be considered.
Outlook
Looking ahead, we expect oil prices to continue wide fluctuations in November, and directional positioning will remain difficult to determine before U.S.-Iran clarity emerges. Although spot prices appear weaker relative to futures, overall marginal supply risks have risen again since mid-October, and various signs from the U.S. military suggest preparations for a geopolitical escalation. The Middle East geopolitical situation remains unresolved. From a safety perspective, we still believe options strategies > monthly spreads & inter-regional spreads > directional positioning. Investors are advised to participate cautiously and pay attention to geopolitical disruptions in early November.
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