Tuesday's oil market saw a dramatic selloff that caught many investors off guard, with a particularly sharp decline occurring after the night session close when losses briefly exceeded 5%. Around 3 AM, Russian media reported that the US and Iran had reached consensus on ceasefire agreement terms, triggering market anxiety as both sides appeared to feel pressure and show willingness to return to negotiations despite their confrontational posturing.

Brent crude rapidly fell from $95 to below $90, essentially defusing the risk of an uncontrolled price surge and temporarily returning to its range-bound trading pattern. The price decline stemmed partly from technical correction needs after consecutive rebounds encountered strong resistance, though this alone wouldn't have shifted market expectations. What truly altered sentiment was the geopolitical thaw, with an unverified Tuesday afternoon report suggesting the US had proposed easing its siege on Iran and lifting sanctions in exchange for Iran reopening the Strait of Hormuz and halting proxy attacks.

Adding to the bearish momentum, Pakistan's Army Chief's visit to Tehran generated positive coverage, causing crude prices to tumble sharply in the afternoon and extending the correction. Meanwhile, internal US State Department documents revealed plans to return diplomatic personnel to multiple Middle East embassies, and several regional airlines were gradually resuming flights, signaling that the likelihood of renewed escalation in Middle East geopolitical risks was diminishing significantly and fueling expectations of regional de-escalation.

While the sharp pullback clearly cooled the market, refined oil product prices globally remained relatively resilient during the crude selloff. The tight supply situation will continue to limit downside before the Strait is reopened, with oil prices likely to remain highly volatile amid geopolitical maneuvering. The true game-changer remains when the blockade is lifted, so risk management and cautious participation are advised.

Daily Market Snapshot

WTI front-month crude futures fell $2.65, or 3.12%, to settle at $82.36 per barrel. Brent front-month crude futures dropped $3.27, or 3.61%, to $87.27 per barrel. INE crude futures declined 3.8% to 569.3 yuan.

The US dollar index slipped 0.09% to 98.91. The HKEX USD/CNY rate fell 0.02% to 6.7134. US 10-year Treasury yields rose 0.4% to 108.92. The Dow Jones Industrial Average gained 0.3% to 53,577.4.

Recent Key Developments

Iran Conflict Enters Sixth Month, Over 40% of Global Oil Supply Affected

Calculations show that nearly half of the world's oil supply in 2026 comes from conflict-affected countries, with the current level of disruption exceeding that of any previous energy crisis. Based on 2025 production levels, conflict-affected nations produce approximately 45 million barrels per day, representing more than 43% of global supply. The US-Israeli strikes on Iran six months ago triggered the largest oil supply crisis in history, with no end in sight.

The Russia-Ukraine conflict continues to reduce production and refining capacity in both countries, and Kazakhstan has also been affected this year. Libya's conflict and US restrictions on Venezuelan oil exports further exacerbate supply tightness. Analysts estimate current supply disruptions in the Gulf region at approximately 5-7 million barrels per day. Despite Saudi Arabia rerouting oil through the Red Sea and Gulf exporters secretly transporting crude via the Strait of Hormuz, overall transportation risks remain elevated.

Global refining capacity has shrunk by about one-tenth. Ukraine has struck most of Russia's refining network, with attacks reaching as far as the Omsk refinery, approximately 2,700 kilometers from Ukrainian-controlled territory. Russia now faces fuel shortages and has banned gasoline and diesel exports, intensifying global fuel market tightness.

Rising fuel prices have become a primary driver of inflation, pushing borrowing costs higher and driving US debt to a record $40 trillion. Despite refineries operating at peak capacity, US diesel prices have climbed to historic highs. The International Energy Agency has released record volumes of emergency reserves, yet global inventories continue to decline, with the release program now largely complete.

US Expands Secondary Sanctions on Iran, Oil Trade Becomes Focus

US Treasury Secretary Bessent announced expanded sanctions on Iran Monday, delivering a final warning to nations: sever commercial ties with Iran or risk exclusion from the dollar-based financial system. Asian nations have long been the largest buyers of Iranian oil, and these sanctions bring the issue of Asian procurement of Iranian crude into sharp focus.

Current Iranian crude imports by Asian nations have declined significantly. Following the US re-imposition of a maritime blockade on Iran on July 13 to cut off oil sales, Iranian exports to Asia have been notably suppressed. Kpler data shows daily exports have fallen to 534,000 barrels since August, well below the average of over 1.4 million barrels per day seen in January-February.

Independent Asian refiners have been the primary buyers of Iranian crude, attracted by its substantial price discounts compared to mainstream international grades. Since 2019, major state-owned Asian refiners have avoided Iranian crude, and official customs data shows no records of Iranian oil imports.

Iranian crude shipped to Asia has long been labeled as "Malaysian crude" or "Indonesian crude," settled outside the dollar system through a closed chain of hard-to-trace intermediaries. The US has previously sanctioned multiple independent Asian refineries and other supply chain participants, but sanctions alone have not significantly slowed the overall flow of Iranian oil to Asia.

Asian Refiners to Nearly Double US Crude Purchases in September, Pressuring Domestic Fuel Supplies

Asian refiners are set to nearly double their US crude purchases in September compared to the previous month. With US gasoline retail prices already at historic highs, this move will further compress the already tight domestic fuel supply.

According to data from Kpler, Vortexa, and Sparta Commodities, US crude exports to Asia are set to rise notably next month. Traders estimate total US crude cargoes loading for Asia in September exceed 40 million barrels, versus an expected 22 million barrels in August. The price advantage of US crude has become more prominent due to sharp increases in competing Middle Eastern grades like ADNOC's Murban, driving this surge in purchases.

Pakistan-Iran Talks Show Progress on De-escalation and Strait Reopening

Pakistan's military spokesperson announced that Army Chief General Munir and Interior Minister Naqvi concluded a one-day visit to Iran, with both sides holding comprehensive discussions focused on preventing further escalation, reopening the Strait of Hormuz, and accelerating measures to end the conflict. The statement noted both parties exchanged views on regional peace and resolving disputes through negotiation. Iran appreciated Pakistan's constructive role and sincere efforts in promoting dialogue, easing tensions, and peacefully resolving the conflict.

Naqvi said on social media that he and General Munir held positive and productive meetings with Iranian President Pezeshkian, focusing on the US-Iran conflict, Middle East tensions and future trajectories, and measures needed to implement the Islamabad Memorandum of Understanding, ultimately achieving a comprehensive resolution. The talks made significant progress and concluded in a positive atmosphere. Qatar's Foreign Ministry spokesperson stated Tuesday that US sanctions on Iran are unilateral, and Qatar supports mediation efforts by all parties to resolve the dispute between the two nations.