Global oil benchmarks posted modest gains on Tuesday, with prices oscillating within a narrow band throughout the session. A notable development was the divergence between Brent's firm outright price and its weakening prompt time-spread, indicating that the market is increasingly pricing in a more prolonged impact from the blockade, with risk extending further along the futures curve. Concurrently, a shift in relative strength has emerged, as the Shanghai International Energy Exchange (INE) crude contract, which had previously lagged Western benchmarks, has begun to outperform, alongside stronger showings from downstream refined products such as high- and low-sulphur fuel oil and bitumen. These products are currently leading gains across China's commodity complex.
Since August, Chinese independent refiners have seen utilisation rates rebound from recent lows, increasing their need for feedstock imports. The prospect of a protracted closure of the Strait of Hormuz, which would curtail supply to the world's largest crude importer, is fueling anxiety among consumers and underpinning the relative strength of the domestic oil-related complex. In a related geopolitical development, Iran rebuffed comments by former President Trump, who had labeled the Strait of Hormuz as "new American territory," calling them delusional. On the 18th, Iranian Parliament Speaker Mohammad Bagher Ghalibaf stated that the strait would remain closed until the US lifts the freeze on Iranian assets, removes oil sanctions, ceases all military threats and operations, and meets other conditions of the memorandum of understanding.
Iranian Foreign Minister Abbas Araghchi echoed this sentiment, asserting that while the US aims to force a surrender through war, "we will not surrender." He added that the US is "now begging to negotiate with us on our terms." With oil prices maintaining their strength, Brent crude has climbed back to the $91 per barrel mark. A strong resistance zone is situated near $95 per barrel. Should the blockade persist, prices could potentially test this resistance again. While maintaining a bullish outlook, market participants are advised to remain vigilant to the possibility of a sudden geopolitical de-escalation, manage risks prudently, and participate with caution.
Daily Market Snapshot
WTI front-month crude futures settled up $0.44, or 0.52%, at $84.94 per barrel. Brent front-month crude futures gained $0.15, or 0.17%, to close at $91.02 per barrel. The INE crude futures contract rose 0.85% to close at 580.3 yuan per barrel.
The US Dollar Index edged up 0.07% to 99.65. The USD/CNH exchange rate on the Hong Kong Stock Exchange rose 0.11% to 6.7332. The yield on 10-year US Treasuries increased 0.1% to 108.56. The Dow Jones Industrial Average slipped 0.22% to 53,343.4 points.
Key Developments and Market News
Saudi Aramco Resumes Oil Loading in the Strait of Hormuz, Offers Spot Medium and Heavy Crude to Asian Refiners
According to industry sources, Saudi Aramco resumed crude oil loading operations within the Strait of Hormuz last week. More tankers are currently waiting to load. The company has also offered spot cargoes of Arab Medium and Arab Heavy crude to some Asian refiners, with plans to conduct ship-to-ship transfers near Fujairah in the UAE this month. This resumption comes after a pause of several weeks following attacks on Saudi tankers in the strait during the escalation of US-Iran tensions last month. Shipping tracking data shows that between August 12th and 16th, three Very Large Crude Carriers (VLCCs) loaded approximately 2 million barrels each from the Juaymah and Ras Tanura terminals, which had seen no loading activity for three weeks. Preliminary data from Kpler suggests that an additional six VLCCs may load Saudi crude from within the strait later this month. Traders indicate that Aramco may also deploy its own tankers for transit, in addition to vessels operated by Sinokor.
Iraq's Alternative Pipeline Project: A Four-Year, $15 Billion Effort to Bypass the Strait
Citing informed sources, an Iraqi news portal reported that Iraq is planning to construct a new oil pipeline through Syria to the Mediterranean Sea to reduce its dependence on the Strait of Hormuz. The project is estimated to take around four years and cost at least $15 billion. Given the severe damage to existing infrastructure from years of conflict and the outdated condition of remaining segments, the project will require building an entirely new pipeline system rather than rehabilitating old lines. US officials and energy industry executives are actively promoting the plan as a key part of a strategy to diminish the oil industry's reliance on the strait. A consortium comprising Chevron, TI Capital, and Qatar's UCC Holding has signed memorandums of understanding with both Iraq and Syria to initiate preliminary technical and financial feasibility studies. Sources say Chevron still needs to complete technical assessments to determine the specific construction approach. US Treasury Secretary Bessent has previously stated that the strategic importance of the Strait of Hormuz will diminish over the next two years, noting that while the strait handled about 20% of global oil and LNG exports before the war, 50% to 70% of that volume could be redirected to overland pipelines in the future. However, sources directly involved in the project caution that the timeline could be longer than optimistic estimates due to the need for entirely new infrastructure. Iraq is among the countries most affected by the strait's closure. Before the conflict, Iraq exported approximately 3.6 million barrels per day, primarily through Persian Gulf terminals, but exports via the strait fell to 35.5 million barrels in July. The new pipeline is designed with a capacity of 2 million barrels per day, far exceeding the old line's 300,000 barrels per day. Iraq previously discussed the project with Syria, and in June, the Iraqi Foreign Minister indicated both sides were considering involving foreign companies.
Is the Strait of Hormuz Actually Open? Signals Remain Contradictory
The market is closely monitoring navigational conditions in the Strait of Hormuz. While it is widely believed that the waterway is effectively under the control of Iran's Islamic Revolutionary Guard Corps and functionally closed, some analysts suggest Iran may be nearing the limits of its coercive power. Strategists at BCA Research, citing US Energy Secretary Wright, noted that reports from the weekend indicated that roughly 75% to 80% of normal oil flows have resumed through the strait. Although shipping company reports have not yet confirmed this figure, signs of rising global inventories are consistent with the view that more crude is transiting the waterway. The US, regional governments, and shipping companies are gradually exploring methods to circumvent Iranian restrictions, including organizing convoys and having vessels switch off their transponders, a tactic reminiscent of responses during the Tanker War in the 1980s. As long as the standoff over the strait continues, uncertainty in the energy market will persist.
Iran States Strait Will Remain Closed Until US Meets Interim Agreement Conditions
Iran's chief nuclear negotiator, Mohammad Bagher Ghalibaf, stated that the Strait of Hormuz will remain closed until the US fulfills the conditions set out in the interim agreement signed with Iran in June. These conditions include lifting the blockade on Iranian ports, revoking oil sanctions, releasing frozen Iranian assets, and ceasing all threats and military operations. The memorandum of understanding was concluded on June 17th but quickly fell apart over disputes regarding control of the strait, a critical chokepoint for global oil and LNG trade. The US declared the agreement terminated on July 7th, with Iran announcing a suspension a week later. Under the original accord, both sides had committed to negotiating a final agreement on broader issues, including Iran's nuclear program, within a maximum of 60 days, with the possibility of an extension by mutual consent. However, senior Iranian officials have indicated that due to the diplomatic impasse, they will shift towards a full offensive military posture.