August 11th, news:
On Monday, August 10, international crude oil staged a strong rebound, with the two benchmark contracts soaring by more than 5%, marking the largest single-day price increase since July 29. Finished oil prices also rose sharply in tandem. The primary reason is the escalating conflict between Iran and the United States over compensation issues, which has cast doubt on the prospects of reaching an agreement to reopen the Strait of Hormuz. Additionally, the U.S. Strategic Petroleum Reserve (SPR) has fallen to its lowest level since 1983, providing robust support from the supply side.
I. Market Review
On Monday, at the close of trading in New York time, NYMEX September WTI crude oil rose by $3.95, a price increase of 5.05%, settling at $82.13 per barrel; ICE October Brent crude oil rose by $4.17, a price increase of 4.99%, settling at $87.72 per barrel.
Refined oil prices followed the strengthening of crude oil costs: In September, RBOB gasoline rose by 15.01 cents, representing a price increase of 5.03%; heating oil surged by 28.74 cents in September, with a price increase of 7.36%. The price increase for distillates was even more pronounced, reflecting growing market concerns about the stability of refined oil supply as well.
The market has seen a sharp reversal in expectations: Last week, the market had bet that the U.S. and Iran were likely to reach an agreement and that shipping through the Strait of Hormuz would resume, causing oil prices to plunge by more than 7% cumulatively. However, this Monday, as the negotiating positions of the two sides clashed, the optimistic outlook quickly dissipated. Long positions that had exited earlier began re-entering the market, and the geopolitical risk premium rebounded rapidly.
II. The Core Driving Logic Behind This Round of Rally
U.S.-Iran negotiations face starkly opposing demands, significantly cooling expectations for the resumption of shipping through the Strait of Hormuz.
Early market optimism was built on the expectation that the U.S. and Iran might reach a temporary agreement to unblock the Strait of Hormuz. However, on August 10, the situation took a clear turn. Iran explicitly laid out preconditions for reopening the strait: the U.S. must permanently cease its strikes, return frozen assets, and compensate for losses caused by the conflict. Trump promptly responded in a tough tone, stating that the U.S. would also demand compensation from Iran and include compensation claims as part of the negotiation agenda. With both sides making reciprocal demands for compensation, their differences have become deeply entrenched, making it highly unlikely that a viable agreement can be reached in the short term, according to market analysts.
Market trading logic shifts rapidly: The prolonged period of low traffic in the Strait of Hormuz may extend, continuing the restricted pattern of Gulf crude oil exports and suppressing global effective crude oil supply. Traders are repricing the scenario of long-term supply tightness, driving up risk premiums. The market generally believes that with Iran adding new negotiation terms, the duration of the tight crude oil supply situation will be extended.
Regional energy facilities in China have been repeatedly attacked, with multiple supply disruptions occurring simultaneously.
In addition to the stalemate in the Strait of Hormuz, supply risks in the Red Sea are once again escalating: Houthi forces struck Saudi Aramco’s Jazan Refinery, a facility with a daily processing capacity of 400,000 barrels, causing further damage. The refinery’s restart has been postponed until August 30, dealing a blow to downstream refining and petrochemical production in the Middle East. Meanwhile, Abu Dhabi National Oil Company revealed that, since the outbreak of the conflict, 15 of its vessels have been targeted while transiting the Strait of Hormuz, keeping shipping companies’ risk-averse sentiment persistently high.
With Ukraine continuing to strike Russian refineries and oil tankers in the Black Sea region, multiple key global oil shipping lanes are simultaneously facing uncertainty, further bolstering bullish sentiment.
The U.S. Strategic Petroleum Reserve has fallen below 300 million barrels, reaching its lowest level since 1983 and eroding the buffer against potential crises.
According to the latest data from the U.S. Department of Energy, China’s Strategic Petroleum Reserve (SPR) inventory has once again declined by 61 million barrels, falling to 298.7 million barrels—a level not seen in more than four decades. Since March of this year, when the Trump administration issued a directive for large-scale releases from the SPR, a total of 172 million barrels of crude oil have been released to help stabilize oil prices. The current sharp contraction in reserve levels means that, should a larger-scale supply disruption occur in the Middle East, the United States will have significantly less room to rely on its strategic reserves to hedge against such risks.
The market has reached a consensus: With insufficient buffer capacity in inventory, when confronted with geopolitical disruptions, the only option is to rely on higher oil prices to curb demand and rebalance supply and demand—a move that will provide a floor for oil prices in the medium to long term.
U.S. commercial inventories are expected to continue their destocking trend, providing supportive fundamentals.
A survey of market analysts indicates that, as of the week ending August 7, U.S. crude oil, gasoline, and distillate fuel inventories are expected to decline in tandem. Reviewing last week’s official EIA data, U.S. commercial crude oil inventories fell sharply by 72 million barrels—a reduction far exceeding expectations. Against the backdrop of continuously declining commercial inventories and strategic reserves nearing low levels, the supply-demand balance for refined petroleum products in the U.S. remains tight, further amplifying the price volatility triggered by geopolitical developments. The weekly inventory reports from API and EIA will be released successively this Wednesday, serving as key short-term validation indicators.
III. Outlook for the Future Market: The Probability of Wide-Ranging Volatility Increases
Crude oil analysts believe that in the short term, oil prices have rapidly shifted from last week’s one-sided downward trend to a pattern of wide-ranging fluctuations at higher levels. Prices will continue to be heavily influenced by developments in U.S.-Iran negotiations, and the market is increasingly characterized by sharp, rapid price swings driven by news events.
Future multiple positive factors provide support: the short-term difficulty in restoring strait passage, SPR at historically low levels, and the ongoing risk of regional facility attacks; at the same time, there are uncertainties: if both sides subsequently restart pragmatic consultations and release signals of easing tensions, the previously risen geopolitical premium will quickly fall again.
Overall, before the United States and Iran reach a clear agreement, the fluctuation range of oil prices will continue to widen, making it difficult to form a one-sided trend, and the probability of wide-ranging fluctuations will increase.
