Brent rallies to $86.90

This morning, Sep'26 Brent futures rallied from a low of $83.73/bbl at 03:36 BST to $86.90/bbl at the time of writing at 11:36 BST. The US carried out a third consecutive night of strikes on Iran, with explosions reported in Bandar Abbas, Bushehr, and on the islands of Kish, Qeshm and Abu Musa, while Iran responded by launching attacks on US military sites in Kuwait, Bahrain and Jordan. President Donald Trump then informed Congress that US military operations had resumed and announced that US Central Command would reinstate a naval blockade of Iranian ports at 16:00 ET (21:00 BST), saying the US would act as the "guardian" of the Strait of Hormuz for a 20% fee. Iran also targeted shipping, striking two UAE oil supertankers and a tanker transiting the Strait of Hormuz with missiles, killing one crew member on a UAE vessel and an Indian sailor while wounding several others. In response, India summoned Iran's deputy ambassador over the death of its citizen, while the UAE confirmed its tankers had been hit in Omani waters. There have since been fresh US missile explosions reported in Bushehr, southern Iran and home to nuclear facilities. Venezuela's acting president, Delcy Rodríguez, said the country's oil production was unaffected by the twin earthquakes that killed more than 4,500 people last month. She added that crude output has risen to around 1.2 mb/d, up roughly 10% from a year ago, and said the government remains confident production will continue to grow through the rest of the year. OPEC cut its 2026 global oil demand growth forecast for a third consecutive month, lowering expected demand growth by 190 kb/d from last month's estimate to 780 kb/d. Despite the downgrade, the group remains more optimistic than many other forecasters and raised its 2027 demand growth forecast by 210 kb/d to 1.94 mb/d. Finally, the Sep/Oct’26 and Sep/Mar’27 Brent futures spreads are at $2.10/bbl and $8.34/bbl, respectively.

This morning in Brent/Dubai we traded lower, down from $4.15/bbl to $3.5/bbl. There was large selling of Q4 around $2.65/bbl, but smalls buyside interest down the curve by fund type. The Dubai spreads were well bid on screen, the Aug/Sep spread moving up from $0.90/bbl to $1.50/bbl, the Aug/Sep/Oct Dub spread up from $0/bbl to $0.46/bbl. There was fund buying of Aug/Oct Dub spread, but the Aug/Sep/Oct fly was offered by major, and the Sep/Dec Dub was well offered by refiner type. The boxes traded largely directionless, the Aug/Sep box lower from $0.50/bbl to $0.20/bbl, but the boxes behind trading rangebound around $0.40/bbl for the Sep/Oct, Oct/Nov and Nov/Dec, respectively.

A very strong start to the day on VLSFO. Sing spreads were bid off the bat which saw Aug/Sep trade up aggressively to $43.00/mt by the end of the morning. The Sing crack was stronger due to spread buying, with Aug trading up to $22.50/bbl. Deferred Euro crack saw some selling at higher levels in Q4. Euro spreads benefited from Sing strength, with Aug/Sep Euro up to $33.00/mt and Euro cracks up to $10.00/bbl.

It was a similar story on HSFO with 380 spreads well bid to start the morning out of Singapore. Aug/Sep 380 was up to $9.00/mt in the early hours of trading before continuing the trajectory upwards closing the morning around $16.50/mt. 380 cracks were stronger off the back of Sing spread and 380 E/W buying, trading up to -$2.00/bbl. As mentioned 380 E/W was better bid, closing the day around $39.75/mt. Barges remained fairly rangebound trading around -$8.30/bbl. Barge spreads were stronger on higher crude with Aug/Sep barges trading up to $8.00/mt.

This morning in distillates, Sing gasoil spreads were bid down the curve, with Aug/Sep trading from $6.60/bbl up to $9.25/bbl, while front E/W also ripped, moving from -$54.50/mt up to -$38.50/mt, lifted post window. Regrade rallied to $5.50/bbl lifted in Aug, while Q4 traded up at $5.75/bbl last.

Prompt ICE gasoil spreads rallied, with Sep/Dec trading from $125/mt up to $152.50/mt, while cracks firmed to $60.50/bbl in Sep futures. Euro jet saw potential stop outs, with Aug trading up to $190/mt and Q1'27 up to $140/mt. Heating oil spreads rallied, while HOGOs sold off, with the Aug HOGO swap moving from 30.0c/gal down to 28.3c/gal.

The gasoline market was a roofer this morning. 92 cracks opened higher at $17.80/bbl and got bid up all the way to $19.25/bbl. Spreads were also extremely strong, with Aug/Sep trading up from $3.50/bbl to $4.60/bbl. There was some scaleback selling from trade houses but it was getting bought into aggressively. Aug E/W traded between -$13.75/bbl and -$13.25/bbl with EBOB also going well bid. Aug cracks rallied from $32.30/bbl to $32.75/bbl, with Q4 valued at $14.75/bbl. Spreads ripped as well on higher RBBR and Brent spreads, with Aug/Sep getting bid up to $67/mt.

Naphtha opens well bid this morning, seeing aggressive buying in spreads in MOPJ with MOC also better bid this morning, seeing Aug MOC getting lifted up to 15c. Trade buying of Aug/Sep, seeing shavers getting lifted $29/mt in the morning and gapping up to $33/mt – trading up to $42/mt end of window. E/W stronger as well this morning, seeing Aug E/W trade up to $57.50/mt, almost up 10 dollars from where it closed at $48.50/mt last night. Prompt crack rallies in Europe, trading -$1.50/bbl end of window.

This morning in NGLs was characterised by FEI strength in the stronger crude environment. FEI spreads opened the day stronger in the front, with Aug/Sep at $21/mt and Sep/Oct at $15/mt. As the morning progressed, spreads continued to strengthen with FEI flat price, and Aug/Sep reached a trading level of $25/mt before printing at $28/mt end window. As FEI continued to be strong, LST/FEI sold off. Aug arb traded down from -$280/mt to settle at -$288/mt end window, having closed the day yesterday at -$256/mt. FEICP was also trading higher, with Aug getting lifted at $89/mt, from a trading level of $66/mt yesterday. Sep FEI/CP also had good interest, trading up to $96/mt on the day. Also had some buying of Aug FEI/MOPJ at -$108/mt. In CP, Aug/Sep was trading at $36/mt, and there was selling of Nov/Dec -$3.50/mt. End window on screen, Aug FEI flat price was lifted at $690/mt, having opened the day at $677/mt.

* More missile strikes overnight between US-Iran, Donald Trump reinstating the blockade of the Straits and demanding a 20% fee on all cargoes shipped through the waterway, plus missile strikes between the Houthis and Saudi Arabia restart after 4 years ‘peace’. Nasdaq fell 1.9%, 2-year yields jumped 8bp to new cycle highs (Chart 1, Bloomberg) (with the OIS pricing 43bp hikes by year end, EZ +46bp, UK +47bp), the dollar rallied and gold fell 2.6% as real rates surged on rising inflation expectations again. SK Hynix fell 15.4% in Seoul, and the Kospi went through another circuit breaker overnight, though it has bounced and is now up on the day.

* Equity markets rotated away from technology and semiconductors into energy and defensive sectors, as rising crude prices, higher yields and geopolitical uncertainty prompted investors to increase downside hedging.

* On the positive side, the equal-weight S&P closed dead flat, 53% S&P stocks were up on the day, and six of eleven sectors finished GREEN on the ugliest geopolitical tape in a month. Also, Apple has surged 17% in just 10 trading sessions, adding nearly $700 billion in market value as investors reward its capital discipline over the AI spending spree of its peers. While Microsoft, Meta, Amazon and Alphabet continue investing heavily in AI infrastructure, Apple's stronger free cash flow and resilient core business are becoming increasingly attractive in a market questioning whether massive AI capex will generate adequate returns.

* Hawkish Fed - Fed’s Chris Waller - “If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term,”