President Donald Trump declared Sunday that Russia and Ukraine have reached an energy ceasefire.
Oil markets were struggling on Monday to gauge how President Donald Trump's new declaration of an "energy ceasefire" between Russia and Ukraine might help mitigate a deepening global oil crisis as the Middle East conflict drags on.
In March, the International Energy Agency, a world authority on energy policy, called the Iran war the "largest supply disruption in the history of the global oil market." While crude disruptions have continued in subsequent months, the focus now has turned to tighter diesel supplies and rising fuel costs, with the U.S. midterm elections only weeks away.
"Despite the market's entrenched, if wobbling, optimism about a quick and durable end to conflicts roiling oil and LNG markets, the outlook remains precarious," said Bob McNally, president at Rapidan Energy Group and a former energy adviser to President George W. Bush.
"Some of the buffers that helped contain crude oil prices are ebbing," McNally told MarketWatch by email Monday from Riyadh, where he was attending the 17th International Energy Forum. China's "crash diet on crude imports" is ending and it is buying more, and strategic petroleum reserve releases are coming to an end, he said.
Trump has repeatedly turned to ceasefires and temporary pauses to tamp down conflicts, but it seems like securing a ceasefire has often proved much easier than sustaining one. That has been particularly true with the U.S.-Iran war: Periods of ceasefires, including a two-week pause in April and the "memorandum of understanding" in June, have repeatedly given way to fresh attacks that show no sign of slowing.
Even if Trump's latest ceasefire plan erases some of the geopolitical threat to fuel supplies from the Russian war in Ukraine, it can't immediately rebuild the hundreds of millions of barrels drawn from global inventories during the Middle East conflict. Months of emergency releases have significantly depleted the U.S. Strategic Petroleum Reserve. The SPR held approximately 415 million barrels of crude oil before the conflict began in February, compared with just 282 million barrels as of early October.
Crude flows through the Strait of Hormuz have been recovering from the lowest levels of disruptions of the U.S.-Israel war with Iran. However, refined product flows remain largely constrained, with diesel supply balances very tight, said McNally. Tanker costs are also "going parabolic" and attacks on fixed energy infrastructure in Russia and Saudi Arabia continue.
The cost of shipping a VLCC (very large crude carrier) cargo from the Middle East to China has surged to around $35 per barrel, compared with just $3 a barrel in early 2026, according to JP Morgan. Freight from the U.S. Gulf Coast to China has reached $41 a barrel, up from $6 a barrel before the war.
'The world's biggest energy disruption looks like it will get worse before it gets better.'Bob McNally, Rapidan Energy Group
Given all of those factors, "the world's biggest energy disruption looks like it will get worse before it gets better," said McNally.
Trump offered a sign of hope on Sunday when he declared an energy ceasefire between Russia and Ukraine, saying both parties agreed to halt attacks on energy infrastructure. Yet Moscow has rejected the deal and there's no sign there is an agreement in place, according to the Wall Street Journal. Oil prices moved higher Monday, with U.S. benchmark crude (CL.1) up 2.6% at $94.20 a barrel and global benchmark Brent crude (BRN00) adding 2% to $106.84.
Political announcements need to be separated from the "physical realities of the oil market," said Matt Stanley, head of market engagement at Kpler.
"The oil market doesn't run on political statements. It runs on physical barrels and, just as importantly, the ability to move them," he said. "A ceasefire between Russia and Ukraine would obviously be welcome, but it doesn't suddenly create additional supply, repair damaged infrastructure or solve the logistical problems we're facing."
Trump's declaration followed his announcement Friday that he and Russian President Vladimir Putin reached a deal to help boost U.S. and global diesel supplies.
Trump claimed that Russia will supply more than 300,000 tons of diesel to the American and global marketplace, followed by another 500,000 tons in November, and, eventually, another 4 million tons of diesel fuel.
Saudi Arabia, for its part, has been looking to expand its pipeline crude-export capacity to as much as 10 million barrels a day, by repurposing a domestic gas pipeline and investing in its East-West pipeline network, according to report from Reuters, citing comments Monday from Saudi Energy Minister Price Abdulaziz bin Salman.
However, Houthi forces over the weekend attacked the kingdom's main airport. The Saudis' escalating fight with the Iran-backed Houthi militants poses new challenges to the country's security and plans to transform its oil-dependent economy, according to the Wall Street Journal.
For now, the tone in Riyadh is "calm, resilient, and determined" despite the attack, said Rapidan's McNally.
That also underscores how the group can inflict economic disruption even beyond the physical damage caused by its strikes, according to Ameneh Mehvar, Middle East regional expert at ACLED, a nonprofit organization that tracks conflicts worldwide.
"By making air travel increasingly unpredictable and raising security concerns around international events, the Houthis are seeking to impose economic costs on Saudi Arabia that extend well beyond the physical damage inflicted," Mehvar said. "With Riyadh promising retaliation and Washington weighing direct intervention, further airstrikes risk fueling another cycle of escalation rather than bringing the attacks to an end," she said.
The U.S. turning to Russia for help looks now like a familiar move for the Trump administration. Back in March, the U.S. said it would temporarily allow Russia to sell oil that had already been loaded onto tankers at sea.
Rapidan's McNally said his company is "skeptical" that there will be a sustained energy ceasefire between Ukraine and Russia, as Moscow doesn't seem to want to go along.
Right now, the market's biggest concern is the risk of conflict expanding to include attacks on critical, fixed energy infrastructure, he told MarketWatch.
So far, the Saudis have been successful at repairing attacks on critical pipelines and energy infrastructure, and both the Saudis and Houthis have exercised some restraint with regard to attacking critical energy and civilian infrastructure, McNally added.
But if that restraint withers, "there could be damage that would interrupt flows for a long time, even if the Strait of Hormuz remains largely open," said McNally.
There's also potential for Iran's escalating attacks against vessels in the Strait of Hormuz to offset the rising risk tolerance of ship owners willing to make the passage under protection offered by the U.S. military, he said.
Joy Wiltermuth contributed.
-Myra P. Saefong -Isabel Wang
