MONTREAL (Oil Monster): Oil prices turned higher Thursday after China suspended most fuel-product exports, adding another layer of supply concern to global energy markets already dealing with Middle East disruptions and tight refined-product inventories.
December Brent crude futures were trading at $99.77 per barrel by 1312 GMT, up $1.70, or 1.8%, from Wednesday's close. U.S. West Texas Intermediate crude gained 37 cents, or 0.4%, to $90.79 per barrel after trading close to $93 earlier in the session.
The move marked a sharp reversal from early Asian trading, when crude prices had been nearly flat as investors weighed stalled U.S.-Iran diplomacy against recovering Middle East oil exports.
Oil prices had begun Thursday with little movement, but sentiment shifted after Chinese refiners suspended exports of petroleum products to markets outside Hong Kong and Macau until further notice.
The decision removes an important source of flexible fuel supply from an already tight global market.
Refined-product availability has been constrained by disruptions tied to the Middle East conflict and attacks affecting Russian refining capacity, increasing pressure on diesel and gasoline markets.
The immediate effect is being felt most clearly in fuel markets, although traders are also assessing whether tighter domestic product availability could encourage Chinese refiners to increase crude purchases.
Thursday's trading highlighted the level of uncertainty still affecting crude markets.
Prices initially slipped more than 1% before reversing course and moving higher as the implications of China's fuel-export suspension became clearer.
The November Brent contract expired Wednesday at $103.50 per barrel after recording a monthly gain of approximately 14% during September.
The market has shifted to the lower-priced December contract, which partly explains the apparent drop in headline Brent prices from levels above $100 earlier in the week.
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Investors are continuing to monitor diplomatic efforts aimed at reducing tensions between the United States and Iran.
Qatar has been facilitating indirect communications between Washington and Tehran, although negotiations have yet to produce a breakthrough.
President Donald Trump has denied reports that his administration was prepared to ease sanctions or release frozen Iranian funds in exchange for steps by Tehran on its nuclear program.
The lack of progress has helped maintain a geopolitical risk premium in oil prices even as physical crude flows from the Gulf improve.
Iran, meanwhile, has continued diplomatic efforts while preparing for the possibility of renewed large-scale military action, according to Reuters reporting.
Improving Middle East crude flows remain the principal counterweight to the geopolitical risk supporting oil prices.
Goldman Sachs estimates Gulf oil exports, including so-called dark exports involving vessels operating without active location transponders, reached approximately 23.3 million barrels per day over the past week.
That puts exports broadly in line with their 2025 average after Gulf shipments increased sharply during September.
Saudi Arabia has also resumed tanker loadings from the Red Sea port of Yanbu after restarting its East-West Pipeline.
The pipeline gives Saudi crude an alternative route to international markets that does not require transit through the Strait of Hormuz.
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U.S. commercial crude inventories increased during the latest reporting week, adding another supply signal for traders to consider.
Commercial crude stocks rose by 922,000 barrels to 427.3 million barrels during the week ended September 25, according to the U.S. Energy Information Administration.
The increase contrasted with expectations for a decline.
Fuel markets told a different story, however, with petroleum-product inventories remaining under pressure amid strong seasonal and international demand.
That divergence between crude availability and refined-product tightness has become increasingly important to the market.
Global diesel markets remain particularly constrained.
The Trump administration has urged Germany and France to consider drawing down emergency diesel inventories as governments look for ways to ease fuel prices and improve global availability.
Washington has also continued to consider possible restrictions on U.S. diesel exports if overseas governments do not take additional steps to release supply.
European diesel refining margins remained exceptionally elevated Thursday, although they had retreated from record levels reached in late September.
China's decision to withhold additional fuel exports could further tighten those markets by removing another potential source of supply.
Oil traders are also looking ahead to Sunday's OPEC+ meeting.
Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman are expected to keep their November production targets unchanged, according to people familiar with the discussions cited by Reuters.
No final decision has been made.
The group completed the phased rollback of a 1.65-million-barrel-per-day supply cut in September, but disruptions caused by the Middle East conflict have prevented several Gulf producers from reaching their current production targets.
OPEC data showed the seven core producers supplied approximately 25 million barrels per day in August, roughly 5 million bpd below pre-conflict February levels.
The market now faces an unusual split between improving crude availability and persistent shortages in refined products.
Middle East crude exports are recovering, Saudi Arabia has reopened an important alternative export route and U.S. commercial crude inventories increased last week.
At the same time, diesel inventories remain tight, refinery disruptions continue to affect fuel availability and China's suspension of exports removes another source of supply from the international market.
That tension helps explain why oil prices remain volatile even as headline crude export volumes improve.
The next major signals will come from China's fuel-export policy, U.S.-Iran diplomatic efforts and Sunday's OPEC+ meeting.
Markets will also be watching whether Gulf exports continue to normalize and whether tight diesel and gasoline supplies begin to ease.
A sustained recovery in crude exports would generally relieve pressure on physical oil supply, while continued shortages of refined products could keep energy prices elevated even if crude availability improves.
Sources: Reuters; U.S. Energy Information Administration. www.reuters.com
