Crude oil futures surged dramatically on Tuesday, with Brent breaking through $100 per barrel and the Shanghai International Energy Exchange (INE) crude contract climbing 7% in overnight trading. The stunning rally reflects growing panic in the market as geopolitical tensions in the Middle East escalate beyond investor expectations. Front-month contracts are now targeting 800 yuan per barrel, pushing the market firmly into an emotionally charged phase driven by fear.

Middle East physical crude benchmarks showed extraordinary strength, with spot premiums for Oman and Dubai surging to $30 per barrel, reaching their highest levels since late March. This reflects mounting anxiety over the safety of oil shipments through the Strait of Hormuz, especially as attacks on commercial vessels intensify. The escalating military confrontation between the US and Iran, combined with continued Houthi strikes on Saudi energy facilities, has created a potent mix of supply disruption fears that are now reshaping global price discovery.

Iran has announced new restricted maritime zones, warning that any vessel passing through without prior coordination will face sanctions. Meanwhile, the Islamic Revolutionary Guard Corps spokesman outlined conditions for de-escalation, including a complete halt to military operations, withdrawal of Israeli forces from Lebanon, lifting the blockade on Yemen, unfreezing $24.4 billion in Iranian assets, and ceasing interference in Iran's nuclear and missile programs. However, President Trump told reporters on September 9 that the US is not seeking negotiations with Iran, stating the situation has already progressed too far. He suggested talks remain possible in the future but now encompass broader issues beyond the nuclear file, and projected that the conflict might conclude after the November midterm elections, while oil prices would likely take longer to retreat.

The EIA's latest monthly report raised its Brent price forecast by $4, now projecting an average of $91 per barrel for 2026. This upward revision reflects the persistent and escalating geopolitical risks affecting oil infrastructure and tankers in the region.

The Shanghai INE Crude Oil futures have become the strongest benchmark globally, closely tracking the robust performance of Middle East crude, which now significantly outpaces Western markets. Combined with rising freight and insurance costs, the import price of crude has climbed sharply. Exchanges have begun issuing risk warnings, urging investors to exercise caution given the highly uncertain and volatile environment surrounding geopolitically sensitive energy products.

Market Snapshot: WTI crude settled up 3.25% at $96.05/barrel; Brent rose 3.36% to $101.21/barrel; INE crude futures gained 7% to 773.1 yuan/barrel.

The dollar index slipped 0.08% to 98.79, while the USD/CNY rate on the Hong Kong Exchange fell 0.05% to 6.7038. The 10-year US Treasury yield dropped 0.32%, and the Dow Jones Industrial Average declined 0.77% to 52,380.66.

Middle East Spot Premiums Soar to $30 as Conflict Premium Undergoes Full Reassessment

Cash Dubai's premium over swaps widened more than $8 in a single day to $30.62 per barrel, while the Oman-Dubai spread expanded to $30.80. The UK Maritime Trade Operations confirmed that multiple commercial vessels in the northern Gulf and Gulf of Oman came under fire during military activities overnight, leaving ships incapacitated. Iran's Revolutionary Guard announced it had fired ballistic missiles at a US base in Jordan and attacked 10 vessels, following US claims of destroying five Iranian oil tankers. This significant escalation has directly raised transport risk premiums for all shipments through Gulf waters, with UAE's national oil company executives noting that additional war risk insurance premiums and cargo insurance costs have dramatically inflated transit expenses.

Going forward, market participants will closely monitor whether actual transit volumes through the Strait of Hormuz shrink further due to soaring insurance costs, and whether major consuming nations activate emergency reserve release mechanisms to quell extreme premiums. Short-term price discovery dominated by geopolitical risk is expected to maintain high volatility.

Strait of Hormuz Transits Plummet as Geopolitical Risk Reshapes Energy Landscape

The latest shipping data reveals that only 6 cargo vessels passed through the Strait of Hormuz on Tuesday, down from 9 the previous day and well below the 10-day average of approximately 12 vessels per day. This figure excludes ships that have turned off their positioning systems to conceal their tracks. Before the US-Iran conflict erupted in late February, this critical waterway at the southern end of the Persian Gulf saw an average of 125 large commercial vessels transit daily, carrying nearly 20% of global daily crude oil and LNG supplies.

Since the US reimposed sanctions in mid-July, Iranian crude exports have effectively ground to a halt. Tuesday's significant escalation, including Houthi attacks on multiple Saudi cities, US strikes on Iranian tankers, and Iran's retaliatory attack on a US base in Jordan, pushed oil prices above $100 per barrel. Reports indicate that US forces disabled five Iran-linked tankers near the Strait of Hormuz and Kharg Island. Meanwhile, transit through the Bab el-Mandeb Strait in the Red Sea stood at 25 vessels, slightly below the 10-day average of 27, including several Suezmax and Aframax tankers.

The current transit data reflects the ongoing geopolitical premium in prices, with panic over supply disruptions dominating short-term movements. Key indicators to watch include whether Hormuz transits can stabilize and how quickly major consuming nations respond with strategic reserve releases - these will be crucial in determining whether oil prices are forming a ceiling at elevated levels.

Conflicting Data on Hormuz Crude Flows Adds Uncertainty, Sustaining Risk Premium

Brent crude crossed the $100 mark, hitting its highest level since late July, driven by renewed Houthi attacks on Saudi energy facilities and Iranian warnings of "economic war" against the US. The Strait of Hormuz has become the central focal point of the US-Iran standoff, yet market participants' estimates of current oil flows through the strait vary dramatically. Pre-conflict daily flows through Hormuz stood at approximately 20 million barrels, accounting for about one-fifth of global oil consumption.

Now, however, many tankers are sailing "dark" with transponders switched off, and the US has reportedly asked commercial satellite companies to delay imagery of the Gulf region, making accurate measurement of actual transit volumes nearly impossible. Analysts are triangulating data from satellite images, port records, tanker drafts, and refinery receipts to estimate flows. The American side and shipping data firm Kpler have arrived at significantly different figures: the US Energy Secretary claimed over 17 million barrels transited the strait on August 31, while Kpler estimated only about 6 million barrels that day. Kpler further estimated August daily average flows at around 4.3 million barrels, rising to nearly 5 million in early September before rapidly declining again. Some of these differences stem from varying statistical methodologies, and dark tankers may mean actual flows are higher than estimates.

This information vacuum has itself become a key driver of oil prices, as the market continues to price in geopolitical risk. This premium is likely to persist for months, and only a de-escalation in US-Iran tensions would provide clearer traffic data. Iran's economy is under strain from the conflict and export blockade, but Tehran retains the ability to disrupt shipping through the strait and has announced plans to designate new restricted waters in the Gulf - uncertainty will persist.

World's Largest Oil Trader Warns: Refineries at Full Capacity, Global Diesel and Gasoline Inventories Depleting

Vitol Group, the world's largest independent oil trader, has issued a stark warning that despite global refineries operating at extremely high utilization rates, available supplies of gasoline and diesel continue to decline. Extended full-capacity operations amplify the risk of equipment failures at major refineries, and any downtime would severely impact refined product markets, with Europe facing the most acute exposure. Even if crude supply were ample, unresolved production disruptions at Russian and Middle Eastern refineries would still leave the world facing fuel shortages - the bottleneck has shifted to refining capacity.

Vitol CEO Russell Hardy noted that refined product markets are tight with little flexibility, as inventories sit near bottom and continue to be drawn down. The US-Iran conflict and Russia-Ukraine war are disrupting global product supplies. Ukrainian drones have repeatedly struck Russian refineries, reducing Russian diesel and gasoline exports, while Russia has imposed a diesel export ban. Crude futures for 2026 have risen over 60%, with refined product prices climbing even higher. US crude output has hit record highs and refineries run at full capacity, yet distillate inventories stand at 25-year seasonal lows, with retail diesel prices at record levels.

Refining margins have surged dramatically, with profits for converting crude into products rising sharply. Nigeria's giant Dangote Refinery, Africa's largest, is now running at full capacity, shipping diesel and jet fuel to Europe. Processing 700,000 barrels of crude daily, the complex can handle multiple crude grades and prioritizes high-value products, helping to offset declining Middle East product exports - though its output remains insufficient to meet all of Europe's needs. Hardy pointed out that while Hormuz crude flows may sustain current refinery operations, the Middle East and Russia have each reduced refined product exports by approximately 2 million barrels per day, making the products crisis more severe than the crude crisis. Industry executives believe the global refining system lacks resilience, with equipment running at high utilization for extended periods making it prone to failures. Kuwaiti oil executives have warned that Northwest Europe faces a harsh winter with fuel shortage risks just beginning, and marine fuel could see supply shortfalls in the third quarter.