Oil dropped more than 2 percent in early Asian trade Monday as profit-taking hit a market that had just posted two weeks of consecutive gains. West Texas Intermediate fell to near $85 a barrel and Brent crude retreated to around $93, with traders unwilling to hold long positions ahead of the Trump administration's detailed sanctions announcement targeting Iran's economy.
The selloff followed a run-up driven by the Strait of Hormuz crisis. Fewer than 20 vessels crossed the chokepoint over the weekend as Iran and the United States continued to trade threats. Traffic through the strait, which normally carries roughly one-fifth of global seaborne oil, has been depressed long enough that downstream effects are showing up in electricity markets as far away as Japan.
Japan's nationwide day-ahead electricity price rose 20 percent in a single week, settling Monday at its highest level since January 2023. The driver is liquefied natural gas supply disruption from the Middle East. Japan relies on LNG imported through routes that pass near the strait, and the supply squeeze is feeding directly into power prices.
The Trump administration's sanctions package, details of which were awaited by markets Monday, expands secondary sanctions that would bar foreign companies from the U.S. financial system if they continue dealing with Iran. Critically, the package did not target major Chinese banks — a decision that limits the immediate enforcement of the measures on Beijing's continued purchases of Iranian crude. China's refiners imported lower volumes of Iranian crude in August compared with July, a reduction the U.S. blockade has contributed to, but the absence of direct action against large Chinese financial institutions leaves a significant gap in the enforcement mechanism.
Iraq is watching the standoff closely. Baghdad wants to more than double its oil output within six years, targeting production of between eight million and 10 million barrels per day. Reaching that level requires OPEC approval to raise its quota — a request complicated by the current market disruption and the cartel's existing supply management commitments.
The Hormuz pressure is redirecting capital toward alternative export infrastructure. French energy major TotalEnergies has agreed to invest in two oil pipelines designed to move crude around the strait. One project backs Abu Dhabi's expansion of its Fujairah export terminal; the second is a planned pipeline that would give Middle Eastern producers a bypass route. Both projects reduce the region's exposure to any prolonged closure of the chokepoint.
Europe is also calculating its exposure. Natural gas prices on the continent need to rise further by December for storage sites to reach levels sufficient to cover winter demand if the Hormuz disruption continues. European storage fills primarily during the shoulder months, and any sustained supply shortfall from the Middle East narrows the buffer available before heating demand peaks in January and February.
In the North Sea, Equinor and Aker BP announced a gas and condensate discovery near the operating Balder field, according to the Norwegian Offshore Directorate. The find adds to Norway's production base but takes years to develop. Separately, the Norwegian government is asking its Supreme Court to overturn lower-court rulings that struck down development permits for three new North Sea oilfields — a legal fight that will determine how much future Norwegian output reaches the European market.
Norway's position on Arctic exploration is firm regardless of how that case resolves. Oslo plans to continue licensing rounds in the Barents Sea independent of whether the European Union maintains or removes its moratorium on Arctic drilling. Norway is not an EU member and has made clear that its energy policy is set in Oslo, not Brussels.
Iran reported a new gas discovery in the southern province of Fars on Sunday. The oil ministry put the find at 7.5 trillion cubic feet, with 73 percent of that volume recoverable under current estimates. The disclosure came while Tehran faced maximum economic pressure from Washington.
Exxon Mobil is reportedly in talks to acquire Shell's U.S. chemicals business, a unit that could fetch $8 billion, according to people familiar with the matter. The potential deal reflects ongoing consolidation in downstream chemicals as integrated majors reassess which businesses earn their cost of capital at current energy prices.
Venezuela presents a separate supply constraint. The country has rebuilt its buyer base after years of sanctions but lacks the port infrastructure to clear the volume. Tankers are waiting as long as 30 days at Venezuelan terminals, a backlog that caps effective export capacity regardless of upstream production. Russia is dealing with a domestic fuel crunch — a gasoline and diesel shortage that authorities are moving to address as the situation deteriorates.
