Trading truly demands imagination. Oil prices spiked and then retreated, pushing the crude market into a phase of heightened volatility. Yet, the most compelling storyline on Monday was the SC2610 contract surging past the 900 yuan mark — a historical first for China's crude futures since their official launch on March 26, 2018. Later in the evening, the SC2611 and SC2612 contracts took up the baton with sharp gains, creating palpable pressure among market participants.

Over the past few weeks, we have witnessed an unusual spectacle as the spread between domestic and international prices climbed almost vertically, repeatedly setting historic extremes. With Middle Eastern supply shrinking under geopolitical attacks and tanker freight rates skyrocketing tenfold, consumers are bearing an immense cost burden from the conflict. Anxiety over raw material supply has inflated bullish sentiment, giving us a deeper appreciation for the years of work nations have invested in energy security to confront exactly such a scenario. It must be noted that SC crude's massive rally carries the potential for sharp subsequent swings, and chasing prices at these levels demands vigilance against downside risk.

Over the weekend, there were no clear signs of easing in Middle Eastern tensions. Saudi Arabia and the Houthis continued striking each other, with the Saudi East-West pipeline shut down after an attack. Estimates of repair timelines vary. According to two regional officials, a key Saudi oil pipeline attacked last week will remain largely out of operation for several weeks while damaged sections are repaired. One official indicated the pipeline might still operate partially during maintenance. The ultimate repair timeframe will determine the geopolitical premium the market assigns.

Meanwhile, Iran's efforts to court Gulf states have hit snags. A high-level meeting between Iran and several Gulf Arab nations, originally scheduled for Monday in Salalah, Oman, was postponed at the last minute. Saudi Arabia insisted on canceling the gathering, a move interpreted as frustration over continued strikes on its territory and energy infrastructure by Iran-backed forces. As oil prices surged, Trump once again stepped in to cool the market, suggesting Iran would want a deal as prices approach $110 — though Tehran has expressed no interest. With little progress on the Iran front, Trump pivoted on Monday toward de-escalating the Russia-Ukraine conflict, claiming both sides agreed to halt strikes on energy targets to cool record diesel prices. Ukrainian President Zelensky responded that Ukraine is ready to support an energy ceasefire if Russia agrees, and having received a US mediation proposal, he is prepared to back measures to reduce tensions. This news drove oil prices off their intraday highs.

Overall, the current situation in the crude market remains highly complex. Geopolitics dominates price action, and until there is a clear cooling-off, market anxieties will persist, sustaining a high geopolitical premium. Still, we can see that elevated prices are pushing the Trump administration to intensify efforts to calm the market. Additionally, the dampening effect of high prices on demand will gradually come into focus. Tracking the positioning of professional institutions in the oil market reveals that funds are turning cautious about adding long positions as prices climb. Market expectations could shift at any moment, and the likelihood of a price correction is steadily increasing. At this stage, risk management should be prioritized, and participation should be cautious.

Daily Snapshot

WTI主力原油期货收涨1.34美元，涨幅1.34%，报101.39美元/桶；布伦特主力原油期货收涨1.07美元，涨幅1.02%，报105.68美元/桶；INE原油期货收涨5.55%，报892元。

美元指数涨幅0.39%，报99.47；港交所美元兑人民币跌幅0.67%，报6.6641；美国十年期国债跌幅0.19%，报105.97；道琼斯工业指数跌幅0.29%，报52421.2。

Recent Developments

The high-level meeting between Iran and several Gulf Arab nations scheduled for Monday in Salalah, Oman, was unexpectedly postponed. The session was intended to explore establishing a critical temporary shipping lane through the Strait of Hormuz. This multilateral gathering carried significant weight — it would have marked the first face-to-face meeting between Iranian officials, Gulf Cooperation Council members, and Iraqi representatives since armed conflict erupted between the US, Israel, and Iran in February. Iranian Foreign Ministry spokesman Baghaei confirmed that Saudi Arabia insisted on canceling the day's meeting. Oman's Foreign Minister Badr, who led mediation efforts, stated Sunday evening that postponing talks was a necessary decision "to reach consensus." The core motivation behind Saudi Arabia's abrupt halt stems from relentless attacks on its territory and energy facilities by Iran-backed forces. Anonymous insiders revealed that frequent cross-border strikes have pushed Riyadh past its limits. In response to Saudi Arabia's retreat, Iran's Foreign Ministry issued a statement saying Riyadh's attribution of the postponement to developments in Yemen is purely "a diversion from the root cause of the crisis." The Saudi government has not directly responded to the diplomatic fallout.

Potential 4% Global Supply Gap If Saudi Pipeline Outage Persists

Saudi Arabia's oil buyers and traders indicate that if the East-West pipeline linking eastern oil fields to the Red Sea coast cannot resume operations within days, the kingdom's available export inventories will be exhausted, potentially reducing global oil supply by approximately 4%. The pipeline was forced offline after a drone attack on Friday, and Riyadh has yet to disclose full details on the extent of damage or outage duration. Estimates on repair timelines vary among sources, with some suggesting five to six weeks and others anticipating faster repairs with partial flow restoration during maintenance. Saudi government press office and the energy ministry have not responded to requests for comment.

As the world's largest oil exporter, Saudi Arabia typically diverts about 4 million barrels per day through this pipeline to the Red Sea port of Yanbu, accounting for roughly 4% of global supply. However, three industry sources familiar with Saudi export operations indicate that with the pipeline down, Yanbu's existing inventories can support only five to seven days of exports. A fourth source noted that Saudi Arabia could also supply customers for several days via Egypt's Red Sea port of Ain Sukhna and the Mediterranean port of Sidi Kerir. Industry estimates place Yanbu's storage capacity at about 35 million barrels, with Ain Sukhna and Sidi Kerir at approximately 18 million and 20 million barrels, respectively. All four sources stated these inventories are not at capacity limits but would eventually be depleted if the pipeline remains offline.

The International Energy Agency reported Friday that Saudi Arabia's August crude supply fell to its lowest level in over three decades due to reduced oil shipments through the Strait of Hormuz and the Red Sea. The agency projects global crude supply will decline by 5.7 million barrels per day this year, a drop of about 6%. Beyond the pipeline attack, Yemen's Houthi group — which had threatened Saudi oil shipments — also seized an island at the entrance to the Red Sea on Friday. Before the conflict, Middle Eastern crude supply stood at approximately 22 million barrels per day; according to industry sources, shipments through the Strait of Hormuz have now fallen to between 6 million and 9 million barrels daily. Saudi Arabia notified OPEC that its production has dropped from 10.9 million barrels per day in February, before the war, to 6.2 million barrels per day in August.

A further decline in Saudi oil supply would intensify the global supply crunch. This situation has already pushed global fuel prices to record highs, fueled inflation, and driven US Treasury yields to their highest levels since the 2008 financial crisis.

White House Weighs Defense Production Act to Expand Refining Capacity Amid Fuel Prices and Midterm Pressures

Two sources with knowledge of the matter say the White House is weighing how to use the Defense Production Act to expand US petroleum refining capacity, as the conflict with Iran exposes America's vulnerability to global supply disruptions and price spikes. This move underscores the mounting pressure on the Trump administration, with November midterm elections approaching, to demonstrate it can curb the impact of surging fuel prices on consumers and businesses.

Trump recently discussed invoking the act during a meeting with nearly a dozen US refiners, with White House officials trying to determine the best way to use federal support to boost refining capacity. No final decision was made at the meeting, but discussions are expected to continue. Refiner executives told officials that rather than funding entirely new refineries, federal money would be better spent on improving efficiency or expanding existing plants, since building new refineries is far costlier and would take years to complete.

The Defense Production Act is viewed as a last resort and has never been used to expand refining capacity. The law grants the president broad authority to marshal industrial resources and provide financial incentives for companies to expand production of materials deemed critical to national defense. The latest discussions build on a presidential determination Trump issued in April, authorizing use of the act to support and expand US oil production, refining, and logistics capabilities.

White House spokesman Rogers stated that US refining capacity is vital to ensuring continued access to safe, affordable, and reliable energy, adding that expanding refining capacity is a top priority for the president and his energy team, who are evaluating specific measures through regulatory reform, accelerated permitting, and increased investment. Latest data shows US refiners are operating at 98% of capacity, near full utilization, highlighting the challenge facing the administration: production is close to its ceiling, yet global supply tightness and strong demand keep fuel prices elevated. The White House is also pushing to secure additional foreign oil supply and has indicated that Venezuela will ultimately add millions of barrels of new production, to be processed by US refineries.