US crude oil futures (WTI) edged higher during the Asian session on Monday (September 28), trading near $93.80 per barrel, lifted by US President Donald Trump's rejection of an Iranian peace proposal. The proposal was aimed at ending the US-Iran conflict and reopening the Strait of Hormuz.

Trump on Sunday rejected Iran's proposal to reopen the Strait of Hormuz, saying Tehran was eager to reach a deal, while also stating that he expects negotiations with Iran to resume this week. Iran said it is waiting for a clear US response to its seven-day strait reopening proposal and other demands, and will not soften its conditions.

Trump Rejects Iran Proposal, Talks Expected to Resume This Week but Iran Won't Budge

Trump on Sunday explicitly rejected Iran's proposal to reopen the Strait of Hormuz, noting that Tehran was eager to reach a deal. He also said he expects negotiations with Iran to resume this week, but Iran has so far shown no sign of softening the terms of its proposal. Iran responded by saying it is waiting for a clear US response to its seven-day strait reopening proposal and other related demands, stressing that it will not soften its existing conditions. The standoff between the two sides means that a substantive breakthrough in US-Iran diplomacy is unlikely in the near term.

As a key channel for global oil transportation, the Strait of Hormuz continues to carry transit risks, directly supporting the risk premium embedded in oil prices. Markets are closely watching the progress of this week's negotiations, and any softening of positions or further hardening of rhetoric will quickly transmit to energy prices. The current deadlock reinforces concerns about supply disruptions, keeping oil prices elevated on geopolitical premium support and exerting sustained pressure on global inflation expectations.

Houthi Attacks on Saudi Arabia Continue, Regional Supply Flows Fragile

The Saudi-backed Yemeni coalition said its air defense systems successfully intercepted two drones launched by the Houthis toward Riyadh, as well as a ballistic missile targeting the southern border region of Khamis Mushait. ANZ analysts noted that geopolitical risks remain high, with the Houthis and Iran continuing to attack Saudi Arabia, making regional supply flows fragile. The Houthis' sustained attacks on Saudi Arabia, along with their operations along the Red Sea coast, keep supply risks alive in two key Middle Eastern waterways — the Strait of Hormuz and the Bab el-Mandeb Strait. These two channels each account for a significant share of global oil transportation, and any disruption could trigger supply tightness.

Analysts believe that the combination of multiple risks is weighing on the regional energy supply chain and providing additional support for international oil prices. Market sensitivity to the Middle East situation is rising, and the Houthis' continued actions have become one of the important variables driving oil price volatility.

Market Eyes API and EIA Inventory Data

Traders are preparing for the US Petroleum Institute (API) weekly inventory data due later on Tuesday. A larger-than-expected draw in crude inventories typically signals stronger demand and could push WTI crude prices higher; conversely, a larger-than-expected build reflects weaker demand or oversupply and could weigh on WTI prices. Subsequently, the US Energy Information Administration (EIA) crude inventory data will be officially released on Wednesday, and the market will use it to verify the accuracy of the API data.

With geopolitical risks currently dominating pricing, these inventory data provide key clues for the short-term supply-demand balance. If inventories continue to decline, it will reinforce the supply-tightness narrative and further support oil prices; if an unexpected build occurs, it could ease some of the upward pressure. Traders will combine geopolitical developments with inventory changes to assess the short-term direction of oil prices. The guiding role of inventory data is particularly important in a high-risk-premium environment.

Institutional View: Oil Prices Add Pressure to the Rates and Inflation Story

Mitsubishi UFJ analysts warned that oil prices are adding another layer of pressure to the rates story, as the latest rise in crude prices has begun to transmit to bond market dynamics. They emphasized that the re-emergence of Middle East geopolitical risks, occurring against an already tight oil market backdrop, has sparked dual concerns about supply and inflation, thereby reinforcing upside risks to global rate expectations. Elevated oil prices push up overall inflation pressure through the energy cost channel, prompting bond yields to rise and in turn affecting the policy path of major central banks such as the Federal Reserve. This chain of transmission forms a loop of "oil prices rise — inflation expectations heat up — rates move higher."

Analysts believe that in an environment where geopolitical risks and supply-demand tightness overlap, the impact of oil prices on the macro rates narrative cannot be ignored. Investors need to incorporate energy price volatility into their framework for judging rates and inflation, and be alert to its additional shock to monetary policy expectations.

Summary

WTI edged higher during the Asian session on Monday as Trump rejected Iran's peace proposal, with US-Iran talks expected to resume this week but Iran refusing to budge, keeping transit risks in the Strait of Hormuz alive. The Houthis continue to attack Saudi Arabia, regional supply flows remain fragile, and ANZ says geopolitical risks remain high. The market is watching API and EIA inventory data to assess the short-term supply-demand balance. Mitsubishi UFJ warned that oil prices are adding pressure to the rates and inflation story, with Middle East geopolitical risks occurring against an already tight oil market backdrop, reinforcing upside risks to global rate expectations.

Looking ahead, attention should be paid to the progress of US-Iran negotiations, whether Houthi attacks escalate, changes in inventory data, and the transmission of elevated oil prices to inflation and central bank policy. With supply risks and geopolitical tensions coexisting, the risk premium in oil prices is unlikely to fade, and downside room is limited. (WTI crude oil daily chart, source: E-Huitong) As of 15:08 Beijing time, WTI crude oil futures were at $93.98 per barrel.