Oil prices advanced on Monday after US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz, restoring a geopolitical premium to both Brent and West Texas Intermediate. Brent crude rose approximately 1.5% to $106 a barrel in Asian trading, while WTI gained about 1.1% to $93.40.
The move reflects renewed concerns over Middle East supply routes, but the more pressing shortage is increasingly downstream: diesel and refining capacity remain considerably tighter than crude itself. This distinction matters for inflation, as Middle East crude flows are recovering while refiners still struggle to replace lost diesel supply from the Gulf and Russia.
Geopolitical premium returns
Trump’s rejection of Tehran’s proposal over the weekend, despite expected further talks this week, kept geopolitical risk elevated. Continued attacks involving Iran and the Houthis have also pressured Saudi infrastructure and regional shipping routes. That was enough to push Brent back above $105 and WTI above $93, but crude availability is improving.
Preliminary data from Kpler show exports from key Middle East producers are set to average 12.8 million barrels a day in September, the highest since the war began in February. Shipments through the Strait of Hormuz are expected to reach about 7.4 million barrels a day. This recovery helps explain why crude has not returned to the extreme levels seen earlier this month despite persistent geopolitical risk.
Diesel emerges as the acute bottleneck
The tighter market is now in refined products. The International Energy Agency said US diesel prices exceeded the equivalent of $200 a barrel in early September. Gulf diesel and gasoil exports averaged just 390,000 barrels a day in August, little more than a quarter of pre-war levels. Combined diesel exports from the Gulf and Russia were 1.6 million barrels a day below February levels, according to the agency.
US inventories reinforce the picture. The Energy Information Administration expects distillate stocks to remain below the five-year low through the end of 2026 and for much of 2027. Societe Generale strategists Michael Haigh and Jeremy Sellem noted in analysis carried by FXStreet that global refined-product markets had moved from merely tight to critical, with Russian outages, low inventories and transport disruptions leaving little spare buffer.
Refining capacity amplifies inflation risk
The squeeze is being amplified by a refinery system already operating close to its limits. S&P Global Energy said US refinery utilisation has been near operational maximum levels for months. European diesel refining margins briefly reached a record $98 a barrel earlier in September as product shortages intensified.
For investors using investment platforms to gain exposure to energy markets, that divergence matters because refined-product margins can move very differently from headline crude prices. Jeff Currie, speaking at S&P Global’s APPEC conference, argued that crude prices were still not fully reflecting Middle East security risks, even as refined products were already signalling much tighter conditions.
That creates a different problem for the oil market. Another crude disruption would still push Brent and WTI higher, but the faster inflation transmission may come through diesel, freight costs and refinery margins.
This article is for informational purposes only and does not constitute financial advice.
