On Friday (October 23), WTI crude oil traded at $100.40 per barrel, with a cumulative increase of nearly $6 this week. Geopolitical risk premiums have become the main pricing driver. The core contradiction running through the market lies in the protracted and seemingly unsolvable stalemate between the US and Iran.

US-Iran standoff: A protracted war with no solution

On the one hand, the US has deployed a second aircraft carrier to solidify its military presence in the Gulf, and market rumors suggest that Trump is considering a new round of strikes against Iran. On the other hand, Trump has publicly accused Iran of fabricating attack rumors to deliberately drive up oil prices ahead of the US midterm elections. US Treasury Secretary Bessenter also signaled that oil tankers have disappeared from Iran's Kharg Island crude oil loading terminal, putting pressure on crude oil export routes. Iran also holds strong countermeasures, issuing a clear warning: if the US and Israel resume airstrikes, the scope of retaliation will extend beyond US military bases and warships, targeting civilian energy facilities such as airports and oil pipelines along the Persian Gulf coast. Iran has stockpiled hundreds to thousands of ballistic missiles and has also resumed small-scale missile production in underground facilities using spare parts reserves. Meanwhile, the air defense interception munitions of the US and its Arab allies are being depleted, revealing weaknesses in their defense capabilities. However, both sides are wary of a full-scale war triggering an energy crisis, and the game remains between deterrence and probing, with the stalemate unlikely to be broken in the short term. Goldman Sachs estimates that the geopolitical premium embedded in Brent crude has reached $22 per barrel, the second highest in history. Even if oil flow in the Strait of Hormuz resumes, the premium is unlikely to fall quickly due to the lack of diplomatic reconciliation. In an extreme scenario, Brent crude prices could potentially hit $120 per barrel. JPMorgan Chase considers a prolonged standoff as the baseline scenario, believing that high oil prices will spontaneously suppress demand and stimulate increased production in non-Middle Eastern regions. The continued conflict is unlikely to support Brent crude prices remaining stable above $110. ING's commodities team also acknowledged that the fear of an escalation in the Persian Gulf situation is the root cause of their overturning of their previous fourth-quarter Brent crude average price forecast of $80.

The Houthis' upgraded long-range strike capabilities increase tail supply risks.

Beyond the US-Iran standoff, the Houthi rebels' evolving combat capabilities have added significant tail risks to the market. Their targets are no longer limited to the Red Sea shipping lanes and Saudi ports along the Red Sea coast; their long-range strikes have extended to the Persian Gulf coast. Saudi Aramco's emergency evacuation of its headquarters in Dhahran is a key indicator of this shift. Coupled with the shutdown of a Libyan pipeline supplying oil to the Zawiya export terminal, leading to production cuts at two oil fields, multiple supply disruptions have collectively driven up oil prices. ANZ analysts state that the shift in the focus of attacks from maritime shipping to Saudi Arabia's core energy infrastructure is a key variable in this second round of risk premium increases. Compared to attacks on ships in the Red Sea, the direct impact on Aramco's production facilities has a stronger impact on spot market expectations. Goldman Sachs also categorizes the Houthi breakthrough in long-range strike capabilities as a low-probability, high-impact black swan risk, advising traders to separately account for tail risk pricing.

The refined oil market is facing a easing of uncertainty: the Russia-China diesel agreement is about to be finalized.

Amidst high risks in the crude oil market, the refined oil market is receiving a hedging boost. The Russian diesel export agreement reached between Putin and Trump will officially take effect tomorrow, with a Maltese-flagged tanker carrying 40,000 tons of Russian diesel already en route to New York. The US argues that the global diesel shortage has spread to the aviation and agricultural supply chains and fueled a humanitarian crisis in East Africa. Opening up Russian diesel exports aims to balance global energy supply, while hoping that trade gains will encourage Russia to return to the negotiating table. The fundamentals of the Russian domestic refined oil market are also improving. The Ministry of Energy stated that gasoline and diesel production has increased, inventories have continued to accumulate, and anti-monopoly agencies, in cooperation with local governments, are stabilizing the domestic refined oil market through an oil price stabilization agreement. The IEA cautions that global diesel inventories are already at multi-year lows, and OECD refinery capacity is nearing its limit. Increased Russian diesel production can only gradually repair the crack spread and cannot resolve the structural tight balance in the refined oil market all at once. Nomura Securities further points out that the current diesel crack spread is deeply tied to market volatility. If the crack spread remains firm and inflation expectations are difficult to cool down, the support for oil prices will continue. A simple approval agreement cannot create a supply of refined oil products out of thin air.

The main focus of transaction tracking: distinguishing between public opinion and actual changes.

Diesel prices have shown signs of easing recently, but crude oil faces a key risk: Iran's overseas crude oil reserves are nearing depletion, which will significantly reduce crude oil supply. However, given that the risk of a rapid rise in oil prices has already been priced in, there's no need to be overly alarmed. The US will likely continue to release information regarding measures to curb oil prices. From a trading perspective, it's crucial to continuously monitor whether the US and Iran will launch new airstrikes, whether the Houthi attacks will continue targeting core energy production capacity, the pace of Russian diesel exports, and whether the EU and Ukraine will introduce countermeasures. The trend of diesel crack spreads, the progress of Libyan pipeline resumption, and actual navigation data in the Strait of Hormuz are also key indicators for distinguishing between verbal statements and actual supply changes. Based on the views of major banks, a strategy of high-level consolidation with a strong upward trend at the end of the trading day is more suitable. Blindly chasing the market is not advisable. The odds for long positions come from unexpected supply disruptions, while the logic for short positions relies on the continued release of Russian diesel and the resulting demand contraction due to high prices.