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Simulated Trading Client Source: Energy Research and Development Center
Market Outlook
Monday saw oil prices swing sharply before closing lower, with the night session at one point dropping more than 5% from the intraday high, while during the afternoon futures trading European and U.S. oil prices once surged significantly, but the physical market began to cool noticeably with discounts continuing to narrow, and in the evening, as the East-West Pipeline resumed oil exports and positive news emerged from U.S.-Iran talks, oil prices began to retreat from highs and turned negative, then rebounded about 2% from the intraday low in the latter half of the night. From the repeated tug-of-war in oil prices over recent trading sessions, it is clear that geopolitical developments are随时 guiding market expectations, attracting most of the attention, while incremental supply is steadily building momentum to cool the oil market.
In the afternoon, the market once circulated news that U.S.-Iran talks had reached a deadlock, after U.S. President Trump said on the 26th that he had rejected Iran's proposal to reopen the Strait of Hormuz, and reports said Iran's foreign minister was preparing to return. But in the evening, according to reports, an official familiar with the negotiations said mediators expect to hold separate talks with the U.S. and Iran on Monday or Tuesday, with Iran's foreign minister and Qatari mediators staying in the United States. The talks will focus on a revised version of Iran's 7-day proposal put forward on the sidelines of the UN General Assembly. What truly panicked the market was a night session report that Trump was willing to offer Iran sanctions relief in exchange for "substantial progress" on the nuclear issue. There were also reports that Iran had agreed to halt uranium enrichment in exchange for the U.S. easing sanctions. But in the early hours of today, these reports were denied by both Iran and the U.S. successively. Iran continued to express its firm stance, while U.S. President Trump denied the reports while acknowledging that talks with Iran had been held through mediators. He also stressed that the U.S. would soon win the war with Iran and oil prices would fall sharply.
Saudi Arabia has now resumed oil exports after completing repairs to a pipeline that was attacked by drones earlier this month. People familiar with the matter said at the time that state-owned Saudi Aramco tested and pressurized the East-West Pipeline last week and planned to restore substantial throughput before the weekend. Saudi Arabia's recent crude sales have been notably aggressive, offering STS supply while showing willingness to increase discounts to win buyers. In addition, Libya's Sarir crude daily output has recovered to 300,000 barrels per day. The rebound in supply-side exports is gradually having an impact on oil prices.
The progress of U.S.-Iran negotiations is undoubtedly the current market focus, which is crucial for investors assessing the oil market. However, the flood of various reports makes it difficult for investors to clearly understand the geopolitical situation, and it cannot be ruled out that some institutions may use false information to induce investors into profit-taking behavior. Domestically, there is only a brief trading window before the National Day holiday begins again, so investors should control risks and participate cautiously.
Daily Developments
[1] WTI front-month crude oil futures closed up $2.01, or 0.21%, at $92.6 per barrel; Brent front-month crude oil futures closed up $0.39, or 0.4%, at $97.83 per barrel; INE crude oil futures closed down 3.06% at 711.6 yuan.
[2] The U.S. dollar index fell 0.05% to 101.19; the Hong Kong Exchange's USD/CNY fell 0.02% to 6.675; U.S. 10-year Treasury bonds fell 0.13% to 104.47; the Dow Jones Industrial Average fell 0.67% to 51,481.51.
Recent Key News
[1] [Oil Market Shows Backwardation, Supply Tightness Signals Strengthen] (1) If you just caught up on oil market moves this morning and saw oil prices at both $100 and $107, you might be confused about which price is correct 鈥?the answer is both are correct. (2) Two widely divergent prices appearing simultaneously in the market shows that oil traders are increasingly nervous about supply after Trump rejected an Iranian proposal aimed at reopening the Strait of Hormuz. (3) The higher price corresponds to the November-delivery Brent crude contract, which is the fastest way to get crude through futures contracts, and these contracts will expire at the end of this month. (4) The lower price corresponds to the October-expiring, December-delivery contract. (5) Normally, the spread between two consecutive month contracts is very small, at most a few dollars, but once the oil market experiences oversupply or shortage, the spread can widen significantly, especially as contracts approach expiry. (6) This time, the earlier-delivery November contract is priced more than $7 per barrel higher than the December contract, sending a signal that the market is scrambling to get crude as quickly as possible 鈥?in traders' jargon, this is called backwardation. (7) The opposite situation is called contango, which appears during oversupply and means contracts nearing expiry have lower prices. (8) From a market perspective, deepening backwardation reflects tight near-term supply, and going forward, attention should be paid to how progress in Hormuz negotiations and the pace of inventory drawdown guide the spread structure.
[2] UK Diesel Prices Hit Record High. The UK's Royal Automobile Club RAC said diesel prices have reached a record high of 199.18 pence per liter as the Middle East war continues to push up fuel costs. Gasoline prices are also still climbing, currently selling at 174.13 pence per liter. Over the past seven months, the Iran war has severely disrupted the region's wholesale oil production and transportation, causing fuel prices made from oil to rise sharply. Since the U.S.-Iran conflict broke out in late February, diesel prices have risen by 59 pence per liter, an increase of nearly 40%. The previous record was set in June 2022 at 199.09 pence per liter. This increase means that filling up an average family car with diesel now costs 拢110, 拢31 more than at the start of the conflict. Gasoline prices are currently 41 pence per liter higher than at the start of the conflict, but still far below the 2022 peak.
[3] According to five people familiar with the matter, Saudi Aramco is considering lowering the official selling price (OSP) of crude loaded in Omani waters to compensate buyers for increased costs due to soaring freight rates. This move may help Saudi Aramco regain some market share lost due to disruptions to oil transportation through the Strait of Hormuz. The people said Saudi Aramco is in talks with some Asian refiners about possible OSP discounts to enhance the attractiveness of its crude amid soaring freight rates. The discounts may apply to cargoes offered this week, which are scheduled for loading in the second half of October and sold through ship-to-ship transfers near Omani waters. One source said the discount currently under discussion is about $9 per barrel. In recent weeks, as Saudi Arabia increased crude exports from fields inside the Gulf, Saudi Aramco has been selling crude loaded outside the Strait of Hormuz (i.e., in Omani waters) to Asian buyers at a premium of $10 to $20 per barrel above the monthly OSP.
Saudi Arabia Adjusts Export Routes, Hormuz Crude Flows Rebound
1. According to energy intelligence firm Kpler, oil exports through the Strait of Hormuz are rebounding this month despite continued shipping restrictions. Saudi Arabia significantly increased shipments through this strategic waterway after an attack disrupted its main pipeline to the Red Sea. 2. Kpler data shows that major Middle Eastern oil producers' crude exports in September are expected to reach 12.8 million barrels per day, the highest since the U.S.-Israel war with Iran began in February. Crude exports through the Strait of Hormuz are estimated at about 7.4 million barrels per day, indicating a clear recovery in the strait's flows. 3. Saudi Arabia's increase is particularly notable. After a September 10 attack damaged a pumping station on the 1,200-kilometer East-West pipeline connecting the eastern oil-producing region to Yanbu on the Red Sea, Saudi Arabia continued to send crude to Gulf terminals. Kpler predicts Saudi Arabia's September crude exports will average about 5.4 million barrels per day, more than double August's 2.446 million barrels. Ras Tanura terminal shipments rose from 929,000 barrels per day in August to about 3.6 million barrels per day. This means Saudi Arabia, which previously relied on the East-West pipeline to bypass the Strait of Hormuz, is now sending more crude through the strait instead. 4. Kpler said the pipeline attack forced Saudi crude to be rerouted; earlier analysis estimated the East-West pipeline system normally transported about 5.5 million barrels per day, including about 4.5 million barrels exported through Yanbu. The pipeline is currently under repair, and a bypass pipeline is being built. However, Hormuz crude flows remain far below pre-war levels, with September regional exports still about 6 million barrels per day lower than February's 18.8 million barrels per day. Kpler also showed that 19 very large crude carriers left the Strait of Hormuz last week, each carrying about 2 million barrels of Saudi crude, with the data not including vessels that may have turned off automatic identification systems. 5. The latest shipping data shows diplomatic efforts to resolve the conflict remain stalled. Iran said on Sunday that diplomacy remains the only way to resolve its conflict with the U.S. and Israel. This came after Trump said he had rejected Iran's proposal to reopen the Strait of Hormuz and end the fighting. Iranian Foreign Minister Araghchi said Tehran's conditions for reopening the waterway have not changed, and any reopening move depends on whether those conditions are met 鈥?only negotiations can break the deadlock.
Saudi Arabia's East-West Pipeline Resumes Oil Exports
People familiar with the matter said a key cross-country pipeline in Saudi Arabia has now resumed oil exports after repairs were completed following a drone attack earlier this month. The people said at the time that state-owned Saudi Aramco tested and pressurized the East-West Pipeline last week and planned to restore substantial throughput before the weekend; the people requested anonymity because the information had not yet been made public. The people responsible for operating the pipeline said overseas shipments have now restarted. Saudi Aramco and Saudi Arabia's Energy Ministry did not immediately respond to requests for comment. The pipeline's return to operation will allow Saudi Arabia to reactivate this alternative export route, which the country used to export oil during the Iran war; at the same time, Saudi Arabia also increased oil shipments through the Strait of Hormuz this month. This will ease supply tightness for buyers, after some European customers were previously told they would not receive crude allocations under long-term contracts next month.
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