Oil rises as hopes for a ceasefire between the US and Iran fade

Oil prices rose for a third consecutive session on Monday as prospects for a deal to end the war in the Middle East dimmed, following Iran’s announcement that it would adopt a more aggressive stance and the United States’ rejection of extending a ceasefire agreement, fueling concerns about energy supplies.

A senior Iranian official told Reuters on Monday that Iran had decided to shift its policy from defense to “full-scale attack” due to the failure of efforts to reach a permanent agreement ending the war with the United States, at a time when Washington ruled out extending the temporary ceasefire.

Brent crude futures rose 89 cents, or one percent, to $91.76 a barrel, after hitting their highest level since July 30 on Monday. U.S. West Texas Intermediate crude also rose, gaining $1.05 to $85.55 a barrel, continuing gains from the previous session to reach its highest level since July 31. Meanwhile, the price of a barrel of Kuwaiti crude rose 14 cents to $82.81 in trading on Sunday, compared to $82.67 on Friday, according to the Kuwait Petroleum Corporation.

Apparent progress in peace talks stalled, and the resumption of oil tanker traffic through the strategic Strait of Hormuz remains uncertain, threatening to prolong the conflict launched by the United States and Israel with attacks on Iran on February 28.

Tim Waterer, chief market analyst at KCM, said: “Oil prices rose at the start of the week amid escalating tensions in U.S.-Iran relations. A deal to reopen the Strait of Hormuz remains distant, and the number of transiting ships remains extremely limited.” Tracking data showed on Monday that a ship transiting the Strait of Hormuz was hit, in the latest attack that continues to restrict passage through the strait, despite a slight increase compared to the beginning of the week. Houthi military spokesperson Yahya Saree said on Telegram that the Yemeni group, allied with Iran, attacked what it described as a Saudi military vessel and four escort boats in the Red Sea using ballistic missiles. Sofronis Sarkar, energy research director at DBS Bank, said: “The failure to reach any kind of agreement will affect oil price expectations for the fourth quarter and even into 2027.”

Tehran is negotiating separately with the Sultanate of Oman on managing the strait, and the two sides say they are close to reaching an agreement.

A cargo ship was hit by a projectile while transiting the Strait of Hormuz, according to the UK Maritime Trade Operations (UKMTO), signaling new indicators of ongoing navigational risks in this vital sea lane, as both Washington and Tehran adopt harder stances.

The incident followed renewed threats by an Iranian military official regarding the Strait of Hormuz. Fox News reported on Monday that Iranian military spokesperson Ebrahim Zolfaghari said ships attempting to transit the strait “will find several beautiful holes in their hulls.”

The group assessed that the most likely scenario is reaching a “limited agreement” allowing for a partial restoration of navigation through the “Hormuz,” adding that pressure on Washington to push for an immediate reopening of the strait has subsided.

It noted that efforts to redirect oil shipments away from the Strait of Hormuz have helped prevent oil prices from exceeding $100 a barrel, and that the global economy has begun to adapt to the closure of the strait, giving the United States greater room to wait.

The Strait of Hormuz, through which about one-fifth of global oil and gas trade passed before the war erupted, has become the main flashpoint of tension between the United States and Iran since February.

Maritime shipping remains nearly halted due to sporadic attacks on oil tankers. According to vessel-tracking data from Kpler, only three ships transited the strait on Sunday.

The Bab al-Mandab strait also saw a decline in transit traffic due to Houthi attacks on ships. Reuters reported that 49 cargo ships carrying essential goods passed through over the weekend, down from 55 in the previous week.

Iranian Foreign Minister Abbas Araghchi said on Saturday in a post on the Telegram app that negotiations with the Sultanate of Oman are ongoing to establish a new maritime route in the “Hormuz” strait.

Eurasia Group analysts believe that any recovery in navigation through “Hormuz” will be limited, given the continued hostility between Washington and Tehran and the heightened risk of renewed escalation, which could disrupt maritime traffic again.

Shipping data and trade sources indicated that Saudi Aramco resumed oil loading from inside the Strait of Hormuz last week, with more tankers waiting to load. The state energy giant is offering cargoes of heavy crude in the spot market.

On Monday, the world’s largest oil exporter offered some Asian refiners cargoes of Arab Medium and Arab Heavy crude for loading via ship-to-ship transfers off the coast of Fujairah, United Arab Emirates, this month. The company had halted sales for weeks following attacks on its tanker fleet in the Strait of Hormuz amid escalating tensions between the United States and Iran last month.

The resumption of Saudi exports may help alleviate the shortage of heavier crude grades that yield more residual fuel oil, which can be used to bunker ships or further processed in refineries to produce higher-quality fuels such as gasoline and diesel. Three very large crude carriers (VLCCs) — Malaysia Prosperity, Algeria Prosperity, and Singapore Prosperity — loaded 2 million barrels of crude each from the Jubeil and Ras Tanura terminals between August 12 and 16. Data from vessel-tracking firms Fortexa and Kpler showed a three-week gap since the last loading at the two ports. It remains unclear which crude grades the tankers carried. Saudi Aramco declined to comment. Sinocor, the owner of the tankers, did not respond to a request for comment.

Preliminary data from Kpler showed that six other VLCCs are expected to carry Saudi oil from inside the strait later this month.

Shipping data from the London Metal Exchange group today showed that seven VLCCs owned by the Saudi Maritime company were at sea off the coasts of the UAE and Oman, while two other tankers were heading to Fujairah.

However, Saudi oil exports remain constrained, as the producer faces a blockade by Houthis in the Red Sea. Aramco had earlier shifted its exports during the war with Iran to the port of Yanbu.

The company offered additional crude cargoes for loading from the Egyptian port of Sidi Kerir on the Mediterranean as an alternative, but the volume represents only a small fraction of the pre-blockade level of 4 million barrels per day previously exported from Yanbu. Moreover, additional shipping costs and longer voyage times deter buyers from purchasing.

Kepler data showed that around 670,000 barrels per day of Middle Eastern crude are expected to be loaded at Sidi Kerir port for shipment to Asia this month, compared with zero in the previous three months.

Emma Li, a market analyst at Fortesa in China, said: “This suggests that the offering of Sidi Kerir cargoes in the Asian market is likely struggling, as Asian customers, at least Chinese ones, are dissatisfied with the long transit times and high shipping costs.”

Three executives, oil tanker tracking firms, and a broker reported that two major Chinese shipping companies have halted sending oil tankers through the Strait of Hormuz and the Bab el-Mandeb in the Middle East due to the ongoing conflict, instead loading cargoes away from the Gulf.

According to Fortesa, a tanker tracking firm, and the broker, Cosco Shipping Energy Transport and China Merchants Energy Shipping, both under the management of the Chinese government, have kept their tankers away from the Strait of Hormuz and Bab el-Mandeb since late July, as security concerns have restricted oil shipments to the world’s largest importer.

The Houthi rebels in Yemen declared a naval blockade against Saudi Arabia on July 20, while the Strait of Hormuz remains largely closed following the collapse of a temporary truce agreement between the United States and Iran reached in June.

A senior executive at a state-owned oil trading company and Chinese shipping executives with direct knowledge said the decision by the two shipping firms to avoid the straits came after consultations with central authorities. These sources and others requested anonymity due to company policy. China Merchants Energy Shipping informed investors in late July that its vessels would not enter the Strait of Hormuz for the time being. It noted that other shipping companies had also avoided the Bab el-Mandeb, without disclosing its own policy regarding this narrow passage at the southern end of the Red Sea, according to a public document. Shipping sector sources said the two companies, which together control more than 100 very large crude carriers (VLCCs) with a capacity of 2 million barrels each, were responsible for transporting nearly half of China’s crude oil imports from the Middle East before the outbreak of the Iran war in late February. Chinese customs data showed that, excluding sanctioned Iranian oil, China’s average crude oil imports from the Middle East, mostly shipped on VLCCs, reached 4.9 million barrels per day last year. The two state-owned shipping firms do not transport Iranian oil due to sanctions, according to traders and analysts.

A senior executive at one of the state-owned shipping companies said the utilization rate of VLCCs has declined since the outbreak of the Iran war, with several vessels rerouted to longer routes toward the Atlantic Ocean and the Americas. The executive said, “The tankers are still operating, but they are sailing on longer routes and facing longer waiting periods amid growing uncertainty.” Cosco did not respond to a request for comment. China Merchants Energy Shipping has also not commented so far.

Data from ship-tracking firm Kpler showed a sharp rise in ship-to-ship transfers involving vessels owned by China and Hong Kong in the Gulf of Oman, with volumes exceeding 600,000 barrels per day in June and July. No such activity was recorded in April or May, while volumes fell below 30,000 barrels per day in the first two months of the year. A second senior executive in the maritime shipping sector said, “They are avoiding the straits, but they are sending ships to new offloading points outside the Gulf—where risks are low and profits are good,” referring to waters off Omani ports and the port of Fujairah in the United Arab Emirates, where most of the Gulf’s crude oil exports have been loaded in recent months and transferred to vessels bound for Asian buyers.

The executive added that the daily shipping cost for a voyage between Oman and China was estimated at $140,000 last Friday, translating to a daily margin of around $110,000 per tanker. He noted that before the Iran war, a supertanker would typically earn between $30,000 and $40,000 per day on a similar route, with the conflict driving a sharp increase in oil shipping revenues from the region. According to Fortexa, four supertankers operated by COSCO and a fifth operated by China Merchants Energy Shipping loaded oil via ship-to-ship transfers at Fujairah in July.

A shipbroker said that between August and mid-September, approximately 12 supertankers each for COSCO and China Merchants Energy Shipping are scheduled to load outside the Gulf—primarily at Fujairah and at or near Omani ports—mostly chartered by Chinese refining companies. In a sign of caution, the vessel Koslaky Lake, one of the last COSCO tankers to enter the Red Sea to load oil from Saudi Arabia’s Yanbu port before the Houthi-imposed blockade, altered its course in early August. It sailed in ballast through the Suez Canal to load Saudi oil from Egypt’s Sidi Kerir port on the Mediterranean, according to data from Kpler.