Geopolitical disturbances continue to tighten the oil market, with middle distillate crack spreads hitting record highs.
2026-09-14 17:52:08
The recent escalation of geopolitical conflicts in the Middle East, attacks on regional energy facilities, adjustments to oil export policies in many countries, and changes in supply and demand expectations have combined to drive significant fluctuations in the international crude oil and middle distillate markets. The crack spread for distillate oil has even hit a record high. Overall, the oil market is characterized by high geopolitical risks, a tight supply and demand structure, cautious market sentiment, and remarkable resilience. 
I. Attacks on Middle Eastern Energy Facilities Drive International Oil Prices Higher Continuing last week's market trend, international oil prices rose in early trading today, with ICE Brent crude futures in London gaining approximately 3% intraday. The core driver of this price surge is the escalating attacks on Saudi Arabia's energy infrastructure, targeting the East-West Pipeline, a crucial energy corridor and a vital backup route for Saudi crude oil exports. If shipping through the Strait of Hormuz is disrupted, this pipeline will play a critical role in diverting crude oil exports, directly impacting the stability of the global crude oil supply chain. Currently, Saudi Arabia has shut down this important pipeline with a daily capacity of 7 million barrels. The specific extent of the damage, the progress of repairs, and the exact timeframe for resuming operations remain unclear, leaving the market in a wait-and-see mode. Clearly, this further escalation of geopolitical conflict in the Middle East poses significant risks to existing oil price forecasting models, gradually pushing the market towards a pessimistic scenario. Given the ongoing large-scale outflow of crude oil through the Strait of Hormuz and the absence of a complete supply chain disruption, institutions maintain their core benchmark forecast, expecting Brent crude oil prices to average $80 per barrel in the fourth quarter of 2026. However, the current geopolitical situation is rapidly changing, and various unforeseen risks could reshape the supply and demand landscape at any time, making subsequent market trends highly uncertain. II. Gulf Conference Postponed, Expectations of De-escalation Failing The multilateral meeting of Gulf states, originally scheduled for today, has been postponed due to the failure of participating parties to reach a consensus. This meeting, which brought together foreign ministers from several Gulf states, including Iran, was originally scheduled to be held in Oman, with core topics including discussions on navigation safety management in the Strait of Hormuz and coordination of regional oil trade order. This temporary postponement means that the effective communication window for resolving regional conflicts and easing geopolitical tensions has further narrowed, significantly reducing the possibility of a short-term de-escalation of geopolitical tensions in the Middle East oil market, providing strong support for continued strong oil prices. III. IEA Significantly Lowers Demand Forecast, Global Inventories Continue to Decline The International Energy Agency (IEA) released its latest monthly oil market report last Friday. Due to the continued impact of Middle East geopolitical disturbances on the global oil supply chain, the agency has once again significantly lowered its global oil demand forecast for this year. This downward revision exceeds previous market expectations, reflecting the substantial suppressive effect of geopolitical risks on global oil consumption. Latest data shows that the IEA expects global oil demand to decrease by 2.5 million barrels per day year-on-year this year, a further reduction of 940,000 barrels per day from the previous month's forecast. Looking ahead to 2027, global oil demand is expected to rebound, with a projected year-on-year increase of 2.6 million barrels per day. Even with the agency's continued bearish outlook on oil demand this year and its continuous downward revisions of demand forecasts, global oil product inventories continue to decline. Data shows that global monitorable oil inventories decreased by 95 million barrels in August. Since February of this year, global crude oil and oil product inventories have cumulatively decreased by 507 million barrels, with an average daily reduction of 2.8 million barrels. This faster-than-expected inventory reduction fully confirms the current tight supply and demand structure in the global oil market, effectively offsetting the negative pressure from weakening demand. IV. Speculative Positions Cautiously Recover, Short Covering Supports the Market The latest commodity position data shows that in the most recent reporting period, speculative funds continued to increase their net long positions in crude oil futures, with net long positions increasing by 4,318 contracts month-on-month, bringing the latest total open interest to 265,753 contracts. From the position structure, this increase in long positions did not stem from new speculative funds entering the market to buy at the bottom, but rather from the concentrated closing of existing short positions. This change in positions directly reflects the weak risk appetite of market participants amidst the current turbulent geopolitical situation and extremely high market uncertainty. They are generally unwilling to actively establish new positions, and their overall trading mentality is cautious and conservative. V. Extreme Shortage of Middle Distillate Oils, Refining Spreads Hit New Historical Highs The shortage in the middle distillate oil market has further intensified, with the shortage completely dominating the market trend. This morning, the intercontinental exchange's gas oil refining spread hit a new historical high of approximately $84 per barrel, and the US diesel refining spread also successfully broke through $110 per barrel, both setting new historical records. These refining spreads far exceed the normal reasonable range, highlighting the continued widening of the global supply-demand gap for middle distillates such as diesel and gas oil, and the severe shortage of market supply. The extreme shortage in the middle distillate oil market has also triggered international political intervention. Former US President Trump has pressured Ukraine to stop its attacks on Russian refining infrastructure. Since the beginning of this year, Ukraine's attacks on Russian oil refining facilities have escalated in frequency, scale, and destructive force, directly forcing Russia to impose a diesel export ban. Coupled with factors such as obstructed crude oil exports from the Persian Gulf region, concentrated global refinery maintenance, and insufficient increases in distillate fuel production, the global supply gap for middle distillates has further widened. The diesel export ban, which took effect in July, has been extended twice and is currently scheduled to expire at the end of September. However, given the current state of the Russia-Ukraine conflict and the global distillate fuel shortage, the possibility of another extension is extremely high, which will continue to support high distillate fuel prices.
I. Attacks on Middle Eastern Energy Facilities Drive International Oil Prices Higher Continuing last week's market trend, international oil prices rose in early trading today, with ICE Brent crude futures in London gaining approximately 3% intraday. The core driver of this price surge is the escalating attacks on Saudi Arabia's energy infrastructure, targeting the East-West Pipeline, a crucial energy corridor and a vital backup route for Saudi crude oil exports. If shipping through the Strait of Hormuz is disrupted, this pipeline will play a critical role in diverting crude oil exports, directly impacting the stability of the global crude oil supply chain. Currently, Saudi Arabia has shut down this important pipeline with a daily capacity of 7 million barrels. The specific extent of the damage, the progress of repairs, and the exact timeframe for resuming operations remain unclear, leaving the market in a wait-and-see mode. Clearly, this further escalation of geopolitical conflict in the Middle East poses significant risks to existing oil price forecasting models, gradually pushing the market towards a pessimistic scenario. Given the ongoing large-scale outflow of crude oil through the Strait of Hormuz and the absence of a complete supply chain disruption, institutions maintain their core benchmark forecast, expecting Brent crude oil prices to average $80 per barrel in the fourth quarter of 2026. However, the current geopolitical situation is rapidly changing, and various unforeseen risks could reshape the supply and demand landscape at any time, making subsequent market trends highly uncertain. II. Gulf Conference Postponed, Expectations of De-escalation Failing The multilateral meeting of Gulf states, originally scheduled for today, has been postponed due to the failure of participating parties to reach a consensus. This meeting, which brought together foreign ministers from several Gulf states, including Iran, was originally scheduled to be held in Oman, with core topics including discussions on navigation safety management in the Strait of Hormuz and coordination of regional oil trade order. This temporary postponement means that the effective communication window for resolving regional conflicts and easing geopolitical tensions has further narrowed, significantly reducing the possibility of a short-term de-escalation of geopolitical tensions in the Middle East oil market, providing strong support for continued strong oil prices. III. IEA Significantly Lowers Demand Forecast, Global Inventories Continue to Decline The International Energy Agency (IEA) released its latest monthly oil market report last Friday. Due to the continued impact of Middle East geopolitical disturbances on the global oil supply chain, the agency has once again significantly lowered its global oil demand forecast for this year. This downward revision exceeds previous market expectations, reflecting the substantial suppressive effect of geopolitical risks on global oil consumption. Latest data shows that the IEA expects global oil demand to decrease by 2.5 million barrels per day year-on-year this year, a further reduction of 940,000 barrels per day from the previous month's forecast. Looking ahead to 2027, global oil demand is expected to rebound, with a projected year-on-year increase of 2.6 million barrels per day. Even with the agency's continued bearish outlook on oil demand this year and its continuous downward revisions of demand forecasts, global oil product inventories continue to decline. Data shows that global monitorable oil inventories decreased by 95 million barrels in August. Since February of this year, global crude oil and oil product inventories have cumulatively decreased by 507 million barrels, with an average daily reduction of 2.8 million barrels. This faster-than-expected inventory reduction fully confirms the current tight supply and demand structure in the global oil market, effectively offsetting the negative pressure from weakening demand. IV. Speculative Positions Cautiously Recover, Short Covering Supports the Market The latest commodity position data shows that in the most recent reporting period, speculative funds continued to increase their net long positions in crude oil futures, with net long positions increasing by 4,318 contracts month-on-month, bringing the latest total open interest to 265,753 contracts. From the position structure, this increase in long positions did not stem from new speculative funds entering the market to buy at the bottom, but rather from the concentrated closing of existing short positions. This change in positions directly reflects the weak risk appetite of market participants amidst the current turbulent geopolitical situation and extremely high market uncertainty. They are generally unwilling to actively establish new positions, and their overall trading mentality is cautious and conservative. V. Extreme Shortage of Middle Distillate Oils, Refining Spreads Hit New Historical Highs The shortage in the middle distillate oil market has further intensified, with the shortage completely dominating the market trend. This morning, the intercontinental exchange's gas oil refining spread hit a new historical high of approximately $84 per barrel, and the US diesel refining spread also successfully broke through $110 per barrel, both setting new historical records. These refining spreads far exceed the normal reasonable range, highlighting the continued widening of the global supply-demand gap for middle distillates such as diesel and gas oil, and the severe shortage of market supply. The extreme shortage in the middle distillate oil market has also triggered international political intervention. Former US President Trump has pressured Ukraine to stop its attacks on Russian refining infrastructure. Since the beginning of this year, Ukraine's attacks on Russian oil refining facilities have escalated in frequency, scale, and destructive force, directly forcing Russia to impose a diesel export ban. Coupled with factors such as obstructed crude oil exports from the Persian Gulf region, concentrated global refinery maintenance, and insufficient increases in distillate fuel production, the global supply gap for middle distillates has further widened. The diesel export ban, which took effect in July, has been extended twice and is currently scheduled to expire at the end of September. However, given the current state of the Russia-Ukraine conflict and the global distillate fuel shortage, the possibility of another extension is extremely high, which will continue to support high distillate fuel prices.
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