Oil climbed back above $106 a barrel on Monday after President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz, keeping the supply fears that have driven crude up 17 percent this month fully intact.
Brent futures rose $1.82, or 1.74 percent, to $106.14 by late Asian trading, while US West Texas Intermediate gained $1.14, or 1.23 percent, to $93.55, according to Reuters. Brent is up 17 percent so far in September, and WTI has climbed alongside it as traders price in a strait that stays closed.
Trump said over the weekend that Iran was desperate to make a deal but rejected its seven-day plan to reopen the strait. He said talks would resume this week. Tehran maintains that only diplomacy can end the standoff. Iranian state media reported a cruise missile fired at a vessel in the strait, and Houthi attacks targeted Riyadh, with flights disrupted at King Khalid International Airport after explosions were heard.
Markets start the week on the back foot
Asian equities opened cautiously. The Nikkei gained 0.8 percent, South Korean stocks dipped 0.6 percent, and the MSCI index of Asia-Pacific shares outside Japan eased 0.2 percent. KOSPI names sold off harder in earlier trade, and US futures pointed lower, led by the Nasdaq. Shanghai fell 1.8 percent on soft industrial profits despite liquidity moves from the central bank.
The pattern is familiar: crude strength feeds rate repricing, which hits duration and high-multiple tech first. Financials benefit at the margin from higher yields, which is why Australian banks led the ASX into a widely expected rate hike from the Reserve Bank of Australia on Tuesday.
Bonds and gold feel the squeeze
The bond market remains under pressure. The 30-year Treasury yield nudged up to 5.518 percent, and the 10-year sits near 5.2 percent after touching its highest level since 2007 last week. Markets now imply a 66 percent chance the Federal Reserve hikes for a second straight meeting in October, with about 90 basis points of tightening priced out to late next year.
Gold fell 0.5 percent to $4,262 an ounce, down more than 4 percent this month as yields shot higher. Spot gold eased to around $4,261 in early Asian trade. Strategists at OCBC note that oil and the rate path remain the swing factors for the metal, with further yield increases keeping the bias under pressure.
The diesel problem underneath
Refining capacity, not crude output, is the tight link. A shortage of refining capacity has pushed diesel prices to all-time highs well above crude, raising the risk that energy inflation becomes embedded in pricing and wage decisions. US diesel is up roughly 60 percent since February and hit a record $6 a gallon earlier this month.
Central banks have already responded with a round of hikes. The ECB raised rates to 2.5 percent last week, its first increase in nearly three years, and flagged the need for further tightening while inflation stays well above target. President Christine Lagarde pointed to refining margins, a corner of the market she said nobody in her position would have discussed six months ago.
The Bank of Japan minutes released Monday from the July meeting showed an 8-to-1 vote to hold near 1.0 percent, with member Takata Hajime pushing for an immediate hike to 1.25 percent. Board members cited oil swings tied to the Middle East and expanding AI demand as the two forces most likely to move policy next, and some suggested market expectations of a hike every six months could prove too slow.
The supply picture keeps thinning
Saudi Arabia is still working around the drone damage to its East-West pipeline, which analysts estimate threatens up to 4 percent of global supply when combined with earlier losses from the conflict and from Russian refinery strikes. Japanese refiners have rushed to book Omani crude to replace Saudi barrels. China has asked Tehran to help rein in the Houthis, according to a Reuters report that briefly knocked crude lower late last week, but there is no sign the request changed anything on the water.
Europe is watching gas too. TTF prices jumped after the pipeline shutdown rattled markets, and Germany is weighing incentives to lift gas storage from record lows ahead of winter. The World Bank and private forecasters have warned that a full strait closure for even a few weeks would push Brent well past current levels, though most scenarios still assume some flow resumes eventually.
What would move the needle
The Hormuz thread follows a familiar negotiation sequence. Rejected proposals followed by an expected resumption of talks have tended to keep a risk premium in crude and freight and insurance costs rather than resolve it. The oil bid historically fades on confirmed de-escalation, not on rhetoric.
Two near-term catalysts are on the calendar: whether US-Iran talks actually resume this week, and how the RBA decision lands on Tuesday against a hike that markets have already priced. Beyond that, the expanded Treasury buyback program, which has pulled money into bond-adjacent trades including crypto funds, runs through November 4, and the next quarterly refunding announcement lands the same day.
For now, traders are treating the strait as closed and the talks as fragile. Every headline that keeps it that way adds to a crude premium that already has Brent 17 percent higher in a month and diesel at records.