Brent crude is trading at $105 per barrel today, up from $104 at last week’s close, as two risks converge on energy markets simultaneously – the unresolved Mideast conflict and rising diesel prices. Iran’s latest proposal for a phased Hormuz reopening was rejected by Washington over sequencing, pushing talks later into the week and driving oil prices up.
At the same time, the White House is weighing a potential ban on US diesel exports to contain domestic prices, a move that has already sent the US diesel crack spread down more than 15% in a single week, from $113 per barrel to $96.
The longer-term tension in this policy is significant. Washington is simultaneously signing long-term LNG export contracts with European buyers, financing Argentine LNG infrastructure and pursuing its Energy Dominance export agenda, while contemplating short-term export restrictions on refined products. Long-dated export contracts create structural dependence that gives Washington leverage over decades. Temporary export restrictions address domestic emergencies over a period of months but put that longer-term relationship potentially at risk.
Hormuz talks stall again on sequencing
Iran presented its latest Hormuz proposal at the UN General Assembly in New York: a seven-day ceasefire covering Lebanon, the release of around $12 billion in frozen assets, a waiver on oil sanctions, an end to the US naval blockade, strait reopening on the final day and nuclear talks thereafter. The US President rejected the proposal on 25 September, saying Tehran wanted the strait opened quickly because it is losing so badly, and that the terms resembled the June memorandum. The disagreement is over sequencing rather than substance. Tehran wants the blockade lifted and assets released before the strait reopens. Washington has held since June that the blockade remains in place until Iran demonstrates goodwill first. Further talks have been confirmed for this week.
The Trump-Xi summit delivered less than energy markets had expected
The US-China trade truce was extended by a further two months to 10 January, the third such extension since the original agreement in Geneva last May. Beijing committed to importing at least 10 million tonnes per annum of US coal in 2027 and 2028, a pledge that largely restores pre-tariff trade volumes rather than creating new demand, and which represents just over 2% of China’s total metallurgical and thermal coal imports. For energy markets, the bilateral omissions were more important than the deliverables. China’s 15% tariff on US LNG, reported to be under negotiation, was left in place. The tariff on crude oil was not mentioned in any readout. Secondary sanctions on Iranian crude buyers were not discussed. The joint statement did include language that no country should be allowed to impose tolls on international waterways, which in theory places Beijing on record against Tehran’s Hormuz fee regime, but the statement carries no enforcement mechanism and does not bind China to any action.
Bond yields above 5% and consumer sentiment falling
US Treasury yields are now above 5% at every maturity beyond seven years. Stronger-than-expected flash PMI readings for September, with US manufacturing at 57 against a consensus of 53.6 and services at 58.7 against 56, alongside hawkish Fed commentary, pushed yields higher and markets now price a 64% chance of a further 25-basis-point rate hike in October and 51% in December. The dollar strengthened alongside yields and gold fell 2.1% on the week. The University of Michigan consumer sentiment survey tells a different story: the index fell for a second consecutive month to 48.1, one-year inflation expectations rose to 4.6% from 4% and assessments of current and forward personal finances weakened by around 10%. Mortgage rates have moved above 7%. The gap between strong PMI readings and weak consumer sentiment is a contrast worth monitoring as the combined weight of expensive energy, higher rates and elevated bond yields accumulates.
