Brent extended its rally for a third straight session, trading above $91/bbl, as geopolitical tension and supply-side risks underpinned pricing. The move followed US President Donald Trump’s decision not to extend the US-Iran peace agreement, while persistent security concerns in the Strait of Hormuz fuelled worries about potential disruptions. Saudi Arabia was reported to be offering crude cargoes from sites off the coast of Oman, as it seeks to route exports outside the Persian Gulf; Saudi Aramco is marketing Arab Medium and Arab Heavy via ship-to-ship transfers from terminals including Sohar.
Demand indicators in China weakened. Refinery throughput fell 15.8% year-on-year to 12.5m b/d in July, and apparent oil demand dropped 17.5% YoY to 12.04m b/d, alongside softer industrial activity, weaker refining margins and rising EV adoption. In products, middle distillates firmed, with the ICE gasoil crack nearing $76/t, supported by reports of Ukrainian attacks on Russia’s Ust-Luga facility and ongoing Russian diesel export restrictions. Speculative net-long positions increased for a sixth consecutive week to the highest level since February.
Trading Strategies Amid Geopolitical and Supply Risks
With Brent crude surging past $91 a barrel, we recommend derivative traders maintain a bullish bias in the coming weeks by utilizing call options to capture further upside. Ongoing geopolitical friction, particularly around the Strait of Hormuz which handles roughly 20% of the world’s daily oil consumption, means supply disruption risks remain high. Traders should look at call spreads to hedge against sudden price spikes as the US-Iran situation remains highly volatile.
We also suggest focusing on middle distillates, where we see significant tactical opportunities in the futures market. Recent attacks on Russia’s Ust-Luga processing facility—which historically handles over 240,000 barrels per day—combined with diesel export bans are keeping the market incredibly tight. Long positions in gasoil crack spreads, currently nearing $76 a ton, offer a strong risk-reward ratio as we head toward the autumn shoulder season.
Meanwhile, Saudi Arabia’s move to market crude grades via ship-to-ship transfers off the coast of Oman shows how major producers are actively preparing for supply-line disruptions. While this diversification helps secure flows outside the Persian Gulf, it underscores the persistent structural risks in the region. We advise trading the Brent-Dubai spread closely as these alternative shipping routes alter traditional pricing benchmarks.
Risks From Weakening Chinese Demand and EV Adoption
On the downside, we must balance this bullishness against China’s weakening appetite, where July refinery throughput plummeted 15.8% year-on-year to 12.5 million barrels per day. Rapid electric vehicle adoption, with China’s EV sales penetration recently crossing the historic 50% milestone, is causing a permanent drag on transport fuel demand. To manage this risk, traders should consider buying protective puts to guard against any sudden demand-driven pullbacks in crude prices.
